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June 2016 • www.CPAPracticeAdvisor.com 35 Most businesses aren't ready for the new overtime and worker clas- sifcation changes to the Fair Labor Standards Act (FLSA) the Depart- ment of Labor recently published, which will impact millions of U.S. workers and their employers. Te rules go into efect December 1, unless Congress prevents or modi- fes them. T hese cha nges w i l l a l most certainly afect how you or your clients pay at least some employees. In brief, if you have a salaried worker making under $46,467 per year, you will either need to give them a pay increase, cut them to hourly, or start paying them overtime when they work more than 40 hours per week. "Businesses aren't really aware of the signifcance of these changes," said Tara Wolckenhauer, Division V P at A DP. "We really need to communicate to them the impact of these rules. How it will impact the way we work, how it will change internal work fows, and what busi- nesses need to be doing to prepare." Te new overtime and worker classif ication r ules doubles the threshold from $23,660 that salaried employees could make and be con- sidered non-exempt from overtime (meaning employers would have to pay them overtime if they made less than that amount). Tat threshold, which equals $455 per week, had not been fully adjusted for infation since 1975, although the last partial update had been made in 2004. Still, it doesn't take a genius to realize that a worker making under $25,000 is not a critical manager. In today's economy, however, can it be efectively argued that even the new threshold of $46,467 is a defning mark for "white collar" managerial positions? Te CEO of the fnancial services frm Sageworks says the number is arbitrary, espe- cially with cost of living diferences across the nation. Many other business group are also against the new overtime threshold, including restaurant chains and those who rely on telecommuters. W hile the overtime changes are monumental, Wolckenhauer says there is a silver lining: Employers have several months to prepare. "Delaying the rules until December 1 was almost a gif," she said. W it h t he t i me lef t before December 1, Wolckenhauer advises businesses to prepare, and ofers the following fve tips. Tis is especially important for small businesses, where the owner may also be in charge of hiring and human resource requirements. 1 Examine Current Pay and Classifcations. One of the frst steps for employers is to make sure they truly understand their employees' compensation structure, classifcation and the rules around FLSA exempt vs. nonexempt status. Employees that earn more than the new threshold of $46,467 can be classifed as exempt from overtime if their work consists mostly of execu- tive, administrative or professional duties. Tis is where having a solid understanding of their actual work duties is critical. Employees who earn less than that new threshold are probably classifed as non-exempt, meaning they can earn overtime. 2 Monitor Employee Hours. Just as important as their classifcation and pay, it's critical that employers assess the hours that their employees work, since that is at the core of overtime pay, if an employee ends up being non- exempt. One method employers can use is to either reduce a worker to part-time, or to minimize the amount of work a salaried (but non-exempt) worker spends doing work. Employers should pay special atention to both remote workers, and regular staf who frequently perform work tasks afer hours, such as checking emails and responding to clients. Businesses may consider using a time and atendance system that tracks worker hours and can alert them (and their super visor) when they near or exceed a 40-hour workweek. 3 Compare the Costs of Pay. As mentioned previously, it may make fscal sense in some cases to change non-exempt employees from salary to hourly, and then pay them overtime as necessary. Tis can be most usef ul when employees do not consistently work 40 hours per week, but it requires more atention be paid to managing their work schedule. W hile the net-efect may not be much of an actual change in compensation, however, this action may be perceived negatively by employees. So employers should communicate the actions in advance. 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. 5 Steps To Prepare for New Overtime Pay Rules By Isaac M. O'Bannon Y our small business clients, and even your own frm, will likely face one of the largest challenges in just the next few months. CONTINUED ON PAGE 37