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Employers Need to Prepare Now For New Federal Overtime Guidelines

June 08, 2016

Christine P. Gonzalez, CPA

Regulations released by the United States Department of Labor establishing new guidelines under which employees must be paid overtime will have a far-reaching impact on employers throughout Connecticut and the nation. Business leaders now must take the right steps to ensure they are in compliance with these new rules before they take effect in December.

The DOL’s final rule establishes a new salary threshold of $47,476 a year for most employees working more than 40 hours a week – this is more than double the current threshold of $23,660. This means that under the new regulations, salaried workers earning less than $47,476 per year ($913 per week) must now be paid overtime – an action that has employee advocates elated but many business leaders concerned.

This has been an issue debated in Washington D.C. for quite some time, and while no action has been taken by Congress, President Obama opted to use his executive authority – under the 1938 Fair Labor Standards Act – to change the nation’s overtime rules.

The final rule, issued this month, is likely to impact thousands of Connecticut employees and the companies that pay them, and is expected to have an effect nationwide – simply put, more than four million Americans could be newly eligible for overtime pay within the first year of implementation.

What does this mean for employers?

Employers should review their payroll practices now and consider making changes to hours, job descriptions, or other terms of employment to ensure they are in compliance with federal and state laws.

Employers should review their workforce to determine who might be subject to the new rules.  The circumstances surrounding each affected employee will likely impact how employers respond.

For each affected employee newly entitled to overtime pay, employers may respond by choosing one or more of the following options:

  • Increasing the salary of an employee who meets the “duties test” to at least the new salary threshold to retain his/her exempt status;
  • Paying the overtime premium of one and a half times the employee’s regular rate of pay for all hours worked over 40 each week;
  • Reducing or eliminating overtime hours; or,
  • Reducing the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and adding pay to account for overtime for hours
    worked over 40 in the workweek, to hold total weekly pay constant.

The new overtime rules will take effect on December 1 of this year. Employers should take this opportunity to properly equip themselves for dealing with the workforce, both now and well into the future.

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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein.  Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities.  This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.


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