The House of Representatives has passed a bill that would delay passage of the new overtime regulations by six months. President Obama has threatened to veto this legislation. We believe it is prudent to prepare for the regulations as if they will go into effect as of 12.1.16.
Effective December 1, 2016, new overtime regulations stipulated by the Fair Labor Standards Act (FLSA) signed in May 2016, will go into effect that will increase wages for many employees in the work force. These new rules effectively double the federal overtime limit, meaning millions of lower- and middle-class employees will be eligible for overtime pay. The rules will have a tremendous impact on the hotel and restaurant industries, where wages are historically low, over-time is historically high, and profit margins are slim.
Currently, the rules affect employees with annual income below $23,640 ($455 per week). That threshold will be raised to $47,476 annually for a full-year worker ($913 per week) and automatically updated every 3 years based on wage growth. An employee who earns annual salary income below $47,476 and does not qualify as exempt will be entitled to overtime pay at time-and-a-half for over 40 hours per week. Most affected will be small businesses with a significant number of low-income employees including those in the retail, restaurant, and manufacturing industries.
Consider these industry statistics from a variety of industry job sites:
All employees in these categories will now qualify for time-and-a-half overtime pay for extra hours.
There are three tests that need to be met for an employee to qualify as an exempt employee and not fall under the overtime regulations. Known as the "white collar" exemptions, they are:
Employers can comply with the new standards in a number of ways:
Employers can also prepare for the new standards in a number of ways:
Employers may also consider implementing the "fluctuating workweek method," where employers pay non-exempt employees a flat salary, as long as that salary is sufficient to provide employees with at least the minimum wage for all hours worked every work week. There are advantages and disadvantages to this method: Your employee earns his/her salary regardless of the number of hours worked during a given week, whether that is 20 or 50. No additional pay is due if a work week exceeds 40 hours. It is important to know, however, that the DOL looks upon this method with suspicion should you face a DOL audit. In addition, not all states recognize use of the fluctuating work week.
The new standards are estimated to affect at least 4.2 million American workers. Businesses should start planning now by getting familiar with the new regulations and how they will affect their business, their employees, and their bottom line.
Despite some skepticism, the new regulations are not likely to prompt hotel and restaurant employers in major markets like New York to cut staff. New York restaurants are always crowded, and in this industry, good help is hard to find. The more likely scenario is that hotel and restaurant patrons will continue to see an increase in their food and lodging tabs.
Questions? Contact your Berdon advisor or Smit Shat, CPA, Berdon LLP, New York Accountants