Contractors Exempt from Overtime Pay? Maybe Not… Employers and need to know about these changes to overtime rules. Under the Fair Labor Standards Act (FLSA), which originally introduced the concepts of a 40 hour work week, a minimum wage, and “time-and-a-half” overtime pay, the Department of Labor is changing the rules for overtime exemptions. The new standards are outlined in the “Final Rule on Defining and Delimiting the Exemptions for Executive, Administrative, and Professional Employees.” The Final Rule updates the salary and compensation levels needed to exempt certain workers from overtime pay. The new rules are effective December 1, 2016. In order for an employee to be exempt from overtime pay, he or she must meet three conditions. These are often called “white collar exemptions.” 1. Salary basis test – meaning that a worker is paid on a salary basis rather than hourly. 2. Salary level test – meaning the worker’s salary falls within a certain range. 3. Duties test – meaning the job involves exempt duties, including certain professional fields and various management or executive responsibilities. The only requirement affected by the Final Rule is the salary level test. Any employee earning more than $913 per week (or $47,476 per year) will be exempt from overtime pay, provided they also pass both the salary basis and duties tests. The amount is currently $455 per week (or $23,660 per year.) Up to 10% of this standard salary level can include nondiscretionary bonuses and incentive payments such as commissions. The other major change is that this wage threshold will be automatically adjusted every three years, beginning on January 1, 2020. Options for employers for responding to the Final Rule Employers may want to evaluate their payroll data and the needs of their business to decide if they should make any changes with compliance to the Final Rule. The following are general options and are not intended to be specific suggestions. 1. Make no changes – An employer can choose to make no changes to his/her employees’ pay or hours. They will continue to pay current salaries but will now include overtime after 40 hours for all employees making less than $913 per week. 2. Raise salaries – An employer may choose to raise salaries above the $913 threshold for certain employees. If the employee meets the two other white collar exemption criteria, they would be exempt from overtime pay. 3. Reorganize workloads, adjust schedules or spread work hours – Distributing assignments to different employees may equalize the overtime necessary to complete projects. 4. Adjust wages – Changing a salaried worker to an hourly rate may prove more costeffective. Seasonality is not a factor and "compensatory time" cannot be used to offset overtime from one week to the next. Exceptions Sub-contractors control their own employees and overtime is not an issue with the general contractor. As always, be careful, to make sure they qualify as an independent contractor or you may be liable for other payroll issues as well as overtime. At Diel & Forguson LLC, it is our job to make sure that you have the knowledge you need to comply with the ever-changing rules and laws affecting you and your business. We are here to answer questions and offer advice about your specific situation. O'Fallon, IL Kenneth R. Diel, CPA, CVA 852 Cambridge Blvd, Suite 100 O'Fallon, IL 62269 618-632-7574 8 St. Louis, MO 1200 South Big Bend St. Louis, MO 63117 314-454-0438
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