Contractors with office staff will likely be affected by a recently issued rule from the U.S. Department of Labor that increases the salary threshold under which most salaried workers are eligible for overtime pay when they work more than 40 hours a week. The new rule is expected to extend overtime protections to an additional 4.2 million employees and boost employee wages by $12 billion over the next 10 years, according to the White House.

The new rule raises the threshold from $23,660 annually ($455 per week) to $47,476 ($913 per week). In addition, the new rule changes the total annual compensation level above which most white-collar workers will be ineligible for overtime. The highly compensated employee (HCE) salary level rises to $134,004 from the current $100,000. The rule will take effect on December 1, 2016.

Other Details
The new rule will also:

  • Automatically update the salary threshold every three years, beginning January 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest wage Census region, estimated to be $51,168 in 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020.
  • Permit employers to count non discretionary bonuses, incentive pay, or commissions toward as much as 10% of the salary threshold for non-HCE workers provided these payments are made on at least a quarterly basis.
  • Retain the “duties test” that determines whether white-collar salaried workers earning more than the salary threshold are ineligible for overtime pay.

What You Can Do
You have some flexibility in how you comply with the new rule. Permissible methods of compliance include raising salaries of primarily executive, administrative, or professional workers to at least the new threshold, paying overtime for hours worked in excess of 40 hours per week, or reducing overtime hours.

Read more about how the new overtime rule will affect your business.

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Briana Peters
I joined Hawkins Ash CPAs in 2013 and am currently an audit manager in the firm’s Green Bay office. As an in-charge accountant, I focus on nonprofit organizations. I am involved in all parts of the audit process including financial statement preparation. I also perform audits for employee benefit plans and reviews and compilations of nonprofits and small businesses. I am a member of the firm’s nonprofit service group as well as the employee benefit plan service group.

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