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May 2016 • www.CPAPracticeAdvisor.com 15 Te proposed changes more than double the salar y threshold that helps determine whether workers are eligible for time-and-a-half pay when working more than 40 hours per week. If fnalized, these changes will make nearly fve million workers eligible for overtime pay as early as this year, unless their salary is raised. In March 2016, the Department of Labor submited the proposal to the Ofce of Management and Budget (OMB) for review. Te OMB could approve the rule as is or ask the DOL for changes. Te fnal rule could be issued as early as later this month; once fnal, employers will likely have 60 days in which to comply. For businesses, this could be the next big compliance challenge fol- lowing the A fordable Care Act. So it's concerning that many employers are not fully prepared to navigate the new rules. According to A DP research, only 25 percent of small businesses owners and 50 percent of midsized employers said they're aware of and taking actions to comply with the new overtime regulations. That means many of those businesses could potentially face substantial penalties down the road for noncompliance. Last year alone, Seyfarth Shaw estimates that the number of wage and hour lawsuits rose nearly eight percent to 8,781 cases. Here are a few steps businesses should take now to prepare. • Ensure compliance with existing rules. Review existing employee clas- sifcations to ensure that your "exempt" employees are properly classifed under current rules. For example, this means that full-time employees who receive less than $455 per week are considered "non-exempt" and must be paid at least minimum wage and overtime. • Identify which employees meet the administrative, professional, or executive exemption. Figure out which employees are exempt and cur- rently earn at least the current minimum of $23,660, but less than the proposed minimum of $50,440 per year. Deter- mine how many hours these employees typically work per week and be sure to factor in any fluctuations in hours during peak periods. • Compare the costs of raising employees' salaries. Weigh the costs of raising employees' salaries to meet the proposed exemption criteria against what it would cost to reclassify them as non-exempt and pay them overtime when they work more than 40 hours a week. If an employee's salary is closer to the current minimum ($23,660) and they rarely work overtime, it might make sense to reclassify them as non- exempt. Conversely, if an employee's salary is closer to the proposed min- imum ($50,440) and they frequently work overtime, you may consider raising their salary to maintain the exemption. • Consider the impact on internal pay equity. Beyond the costs of raising exempt employees' salaries, consider the impact on internal pay equity. Internal equity means employees are paid fairly when compared with other employees within your company. If you substantially increase some employees' pay, other employees may have ques- tions about w hy their pay isn't increasing. Also remember that if the automatic annual increases become fnal, you would need to review and adjust exempt employees' salaries each year. To learn more about the proposed rules and how to remain compliant, A DP has created a unique suite of educational tools to help your business that includes: • An online FLSA resource center. Tis features a wide range of educa- tional materials, including fact sheets, articles, legislative updates, info- graphics, calculators, and a schedule of free webinars to help companies understand the fnancial impact of the proposed changes • Two online calculators. Tese are designed to provide a simple assess- ment of the annual impact at the federal level of paying overtime versus raising salaries to meet the anticipated new threshold of $50,440 per year. One of two calculators estimates this for the organization as a whole; the second helps employers view options for an individual employee, including an estimated cost-neutral wage based on the overtime that person works. • A series of free webinars. ADP has partnered with Litler Mendelson, one of the nation's leading employment and labor-law practices, to help employers learn more about the pending overtime changes and best practices to avoid wage and hour mistakes. Te main takeaway: Start develop- ing a plan now to implement any changes once the fnal rule becomes efective. Consider how these changes will impact reclassifed employees and develop a communication plan to address questions they may have related to timekeeping and pay. We will provide updated information and guid- ance once the fnal rule is published. Tis article frst appeared on the Connect@ADP Blog. Are Your Clients Ready for Sweeping Changes in Overtime? By Joe DeSilva I n July 2015, the U.S. Department of Labor (DOL) proposed changes to the Fair Labor Standards Act (FLSA) that would substantially overhaul overtime pay rules. A Year in the Life of a PAYROLL Accountant is sponsored by ADP and SurePayroll The ADP logo and ADP are registered trademarks of ADP, LLC. ADP A more human resource. is a service mark of ADP, LLC. Copyright © 2016 ADP, LLC. Practice made perfect. You want to be more to your clients, and we want to offer you the fexibility you deserve. You can process payroll yourself using our proprietary cloud-based solution, refer clients directly to give your clients access to leading payroll and HR solutions, or even cash out of your existing payroll business to focus on what matters most to your frm. See how ADP ® can provide a more human resource to your frm and your clients: adp.com/cpaprograms.