In March 2019, the Department of Labor (DOL) released a proposed rule that could change the requirements for paying overtime wages by employers. This legislation would change the salary thresholds for the first time since 2004.
Currently, employees that make $23,660 or less annually ($455 per week) must be paid overtime wages on all hours over 40 hours per week. The proposed rule would change this threshold so employees that make $35,308 or less annually ($679 per week) would be paid overtime wages on all hours over 40 hours per week.
Effect on Retirement Plans
Retirement plans could be affected in multiple ways if this ruling is passed.
When plans have more eligible employees, there is also an increase in eligible wages which would increase the amount of employee deferrals going into the plan. This is an added benefit for a participant’s retirement account. Likewise, if employers pay matching contributions to plans based on compensation, the amount of the employer contributions into the plans would increase. This would be a direct increase in expense for employers in addition to the increased overtime wages they will be paying. Plan sponsors will want to evaluate the effect of the increased wages on the employer match and adjust the match level if needed as permitted by the Plan document.
Another proposed change in the rule would increase the definition of a “highly compensated employee” (HCE) from someone that earns $100,000 per year to someone that earns $147,414 per year. This would affect the compliance testing that is required to be done by plans annually and could potentially result in increased costs of operating the plans.
For now, employers will have to wait and see if the proposed rule released by the Department of Labor will be passed or not. Employers should always be knowledgeable on the eligibility rules of their plans and also the employer contributions that are required to be paid per their Plan documents. Having this knowledge will allow employers to make educated decisions on the operation of their plans based on any new rules that are released.
Article was written by Rachel Burrow, CPA.