You need to consider new overtime pay rules

New Overtime Pay RUles

Fair Labor Standards Act (FLSA) reclassifies managerial positions and pay rules

Isaac O’Bannon in CPA Practice Advisor (cited below) recently discussed five steps small office / home-based (SOHO) business owners about  these new overtime pay rules.

Overtime Pay Rules

The Department of Labor’s Fair Labor Standards Act (or FLSA) affects the classification of many workers in SOHO businesses. This is the first revision in guidelines since 2004.

The pay threshold for “white-collar” positions (generally considered executive, administrative, or professional), where no overtime is paid, has been raised to $47,892 (cited in Dex Media below) from the earlier $23, 660 (or $455 per week) originally set in 1975.  This payroll threshold change from salaried to hourly workers (overtime exempt versus nonexempt employees) will have a broad impact on annual budgets, job classifications, and workflow planning from an owner/operator perspective in many industries.

These new guidelines will impact SOHO service businesses with erratic or seasonal labor demands more than larger enterprises. This article, citing sources at the payroll giant, ADP, suggests several areas small business owners should consider in planning their future financial course.

  • What is your business compensation structure? How do you classify employees?  The article mentions the increasing use of remote workers as problematic since these employees typically earn less than on-site workers and experience less supervision. What classifications are critical for your business operation. Many businesses have found tremendous cost savings in outsourcing portions of their operation. A suggestion, common on telecommuting platforms, is an attendance tracking system that both tracks and can control hours up to the maximum amount per pay period.
  • Another consideration is a regular review of payroll as a company cost.  Federal and state tax requirements could amplify a bad labor allocation decision. Matching the labor demand and required level of ability against a changing workflow now deserves more carefully evaluation.  HRDrive (cited below) suggests that employers who must begin tracking hours “due to the higher threshold… will need new labor management systems, primarily for timekeeping” resulting in “significant administrative burdens.”  Total cost of operating
    your company (total cost of ownership or TCO) could redefine job
    descriptions and hiring practices based on a percentage of revenue.
  • Pay equity is always an important issue. The article suggests a role-based model in your workplace to apply guidance. Job roles might better show what jobs are real and where in the workflow they actually occur.  This model not only offers a fair way to assign hours and compensation but conforms, in a greater context, with other big-picture business considerations like security.  Most computerized business systems have adopted a role-based model to assign and control security access.
  • There is a  need for proactively controlling business costs and expenses. This topic more than not dominates SOHO business planning.  Key performance measure tracking short and long-term costs are at the heart of every successful SOHO business.

Your business checklist should include a review of your payroll record keeping and reporting systems especially in you use an in-house system. Dex (cited below) suggests checking all relevant minimum wages laws at both the federal and state levels. Notify your employees of any changes in job descriptions or classifications. Strategize any salary and bonus agreements as well as incentive plans. Prepare now for the implementation deadline scheduled for December 1, 2016.

SOHO TaxTip Takeaways

5 Steps Small Businesses Must Take To Prepare for New Overtime Pay Rules – CPA Practice Advisor

New Overtime Pay Rule: 5 Steps to Take – Dex Media

Why new overtime rules will raise payroll costs for employers of all sizes – HR Drive

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