Is your Business Ready for the New Overtime Rules in 2020? by Adam Cohen, CPA
Posted on March 04, 2020
by
Adam Cohen
With the cheer of a New Year, businesses must contend with new rules for calculating employees’ overtime hours under the Fair Labor Standards Act (FLSA). According to the Department of Labor, companies will need to begin paying overtime in 2020 to approximately 1.3 million workers who were not previously eligible to receive it.
In general, the FLSA requires employers to pay overtime to nonexempt workers at a rate of at least one-and-a-half times the employee’s regular rate of pay for hours worked above a 40-hour week. Effective Jan. 15, 2020, the salary threshold for exempting workers from overtime pay increased to $684 per week (or $35,568 per year) from the previous level of $455 per week (or $23,660 annually). The Department of Labor also raised the total annual compensation requirement for “highly compensated employees” to $107,432 per year from $100,000 in 2019.
In addition to the higher minimum salary required to exempt workers from overtime pay, the final regulations also change the way in which employers must treat certain bonuses for purposes of calculating a worker’s regular rate of pay. More specifically, employers may use annual or more frequent non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of an employee’s regular salary for purposes of determining exemption or non-exemption from overtime pay.
In addition, the final regulations provide employers with an opportunity to be more competitive in attracting and retaining workers by allowing them to extend more benefits to their workers without increasing their exposure to additional overtime liabilities. The specific benefits employers may exclude from an employee’s regular rate of pay, include:
- Certain sign-on bonuses, longevity bonuses and discretionary bonuses;
- Employer reimbursements for workers’ unused paid time off or sick days;
- Employer reimbursements for workers’ cellphone plans, professional membership dues and credentialing exam fees, and certain travel expenses that are not incurred “solely” for the employer’s benefit;
- Employer costs for providing workers with certain parking benefits, wellness programs, gym access, discounts on retail goods and services, tuition benefits, adoption assistance and gifts of office coffee and snacks; and
- Contributions to workers’ benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
In addition, call-back pay is no longer required to be “infrequent and sporadic” to qualify as excludable from an employee’s regular rate of pay as long as those payments are not prearranged.
If an employee does not earn enough in non-discretionary bonuses or incentive payments to retain his or her exempt status in a given year, the employer may make a catch-up payment at the end of the 52-week period. Special rules apply for the amount and timing of these catch-up payments.
While the new regulations are more taxpayer-friendly, it is critical that employers take the time to more closely evaluate their employee compensation practices, accurately identify workers eligibility for or exemption from overtime pay and properly calculate workers’ regular rate of pay to avoid liabilities for unpaid wages, liquidation damages and attorney’s fees. Equally important, employers should take the time to update employee handbooks and time-keeping software to comply with the new regulations and share this information with their entire workforce.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
← Previous
