Expected Changes in Overtime Laws, Advice for CPAs

SCHEEF & STONE, L.L.P.
LEGAL COUNSEL BASED ON SOLID PRINCIPLES
DOL Overtime Rules – The new
rules and how they will affect
businesses and your clients
Scheef & Stone, LLP
Brandi J. McKay
brandi.mckay@solidcounsel.com

Fair Labor Standards Act
• Federal Minimum Wage: $7.25/hour
• General Rule: All employees must be paid
1½ times their regular rate of pay for all
hours over 40 hours in a work week

“White Collar” Exemptions
• Section 13(a)(1) of the FLSA provides an
exemption from both minimum wage and
overtime pay for employees who are employed
in a bona fide:
– Executive;
– Administrative;
– Professional; or
– Outside Sales capacity.
• Certain computer employees may be exempt
professionals under Section 13(a)(1) or exempt
under Section 13(a)(17) of the FLSA.

EAP EXEMPTIONS
• Executive, Administrative and Professional
exemptions
→ Must meet a “Primary Duties” test
→ Must meet a salary test – Presently,
salary must be at least $455/week
($23,660/year)

OUTSIDE SALES REPRESENTATIVE
• Only a “Duties Test” applies
→ Primary Duty involves working away
from the employer’s place of business
calling on customers and making sales.
− Example: New Home salespersons
• No minimum wage, overtime, or salary
requirement.
• Employer must strictly follow commission
pay agreement.

COMPUTER PROFESSIONAL
• Special Exemption under FLSA Section
213(a)(17) for computer systems analysts,
computer programmers, software
engineers or “other similarly skilled
workers”.
→ Focus is on software not hardware
• Currently, must be paid at least $455/wk.
OR, if hourly, $27.63/hr. ($1,105.20/wk.)

BEGINNING OF CURRENT CHANGE
• In March 2014, President Obama issued a directive
to the Secretary of Labor to modernize and simplify
the existing white collar exemptions.
• Regulations have not been updated since 2004.
• The Proposed regulations were originally due by the
end of 2014; then by June 22, 2015.
• New rules to be issued July 6, 2016.

PURPOSE OF THE CHANGE
• The DOL believes that “in some instances the
current tests may allow exemption of employees
who are performing such a disproportionate
amount of nonexempt work that they are not
EAP employees in any meaningful sense.” Under
the DOL proposal, “The Department estimates
4.6 million currently exempt workers . . . would . .
. become entitled to minimum wage and
overtime protection . . .”

THE JULY 2016
PROPOSED CHANGES
• The DOL proposed only two specific changes:
1. For EAP exemptions, the DOL proposes to
increase the minimum salary level from $455/week
to an amount equal to the weekly earnings of the
40th
percentile of full-time salaried employees.
− Using 2013 data that would equal
$921/week or $47,892/year
− For 2016, estimate $970/wk.; $50,440/yr.

THE JULY 2016
PROPOSED CHANGES
2. The minimum annual salary for highly
compensated exemption would be raised from
$100,000 to $122,148.

CURRENT DUTIES TEST
• Executive Exemption
→ Managing – Enterprise or Department
→ Primary Duty = “Managing”
→ Supervising two or more full-time employees
• Hiring or firing authority or
• Recommendations given weight
• Administrative Exemption
→ Office or non-manual Work
→ Primary Duty: non-manual work directly related to
management or general business operations
→ Must exercise discretion and independent judgment
regarding matters of significance

CURRENT DUTIES TEST
• Outside Sales Exemption
→ Primary duty making sales/orders
→ Customarily and regularly away from employer’s
place of business
− Lipnicki v. Meritage Homes
• Professional Exemption
→ Teaching
→ Advanced Knowledge
− Field of science
− Long course of specialized study/training

CURRENT DUTIES TEST
• Computer Employees Exemption
→ Primary Duty Consists of:
− Systems analysis
− Designing or modifying computer systems
or programs based upon user or system
specifications or
− A combination of these duties

CURRENT DUTIES TEST
• Highly Compensated Employees
→ Performs office or non-manual work only
→ Customarily and Regularly performs at least
one EAP duty
→ Paid at least $100,000/year including at least
$455/wk. (or as amended) salary plus
commissions, nondiscretionary bonuses, etc.
but does not include board, lodging,
insurance, retirement plans or other fringe
benefits

DOL ANTICIPATED CHANGES
We anticipate that the new Regulations
will:
(1)raise the minimum salary threshold for
overtime exemption significantly; and
(2)modify/eliminate the current “primary
duty” test used to determine whether an
employee qualifies under a white collar
exemption and replace with % of time on
exempt duties

ANTICIPATED CHANGES -- SALARY
• RAISING THE SALARY THRESHOLD
→ Former Economic Policy Institute
economist Heidi Shierholz (now Labor
Secretary Perez’s CE) advocated last fall
for $984/week ($51,168/year)
→ January 29, 2015 letter from 26
Senators advocated $1,090/week
($56,680/year)
→ DOL recommends $970/week ($50,440/year)

ANTICIPATED CHANGES -- SALARY
• We anticipate that the salary threshold will
be raised to between $769/wk. ($40,000/yr.)
and $970/wk. ($50,440/yr.)

ANTICIPATED CHANGES -- DUTIES
The July 2016 Proposed Changes DID NOT attempt
to change the “Primary Duty” standard/test but DID ask
for comments to that standard/test:
• Does the current Duties Test for each exemption
category distinguish between time spent performing
exempt and nonexempt duties?
• Is the concurrent “Duties” regulation for executive
employees – allowing concurrent performance of
exempt/nonexempt duties working well? Should there
be a limitation on the amount of nonexempt work?

• The DOL will most likely attempt to modify
the “primary duty” standard/test.
→ DOL may adopt a strict “division of
labor” test—that is, spend at least 50
percent of hours performing “executive,
administrative or professional duties”

• Example: An assistant manager at a clothing
store is responsible for hiring, firing,
promoting and evaluating employees, but
spends only 25% of his/her time performing
those functions and the majority of the
remaining time engaged in other activities,
such as customer relations, sales, stocking,
ordering, etc.

THE DOL RECEIVED A FEW
COMMENTS
• The comment period ended on September 4,
2015.
• The DOL received roughly 270,000 comments-
three times the amount of comments it received
in 2004 when it last updated overtime rules.
• 50,000 comments came in during the last week
alone.
• Business groups staunchly oppose

TIPS FOR CPAs
Often, small business owners rely solely on their
accountants as their most trusted advisor for compliance,
and this reliance will continue to increase in the future.
An accountant needs to provide a customized
compliance approach, which can range from simple
quarterly business reviews, to macro-level advice on
general compliance risk areas, to a strategic approach
where the accountant takes the lead to establish a
compliance team with other advisors: retirement
brokers, health and benefit brokers, and legal counsel.

TIPS FOR CPAs
• Provide audit services for employees
• Evaluate Business Structure: Determine
whether your client’s business has the right
structure - limited liability company, C corp, S
corp, or sole proprietorship
• Evaluate Employee Hours
– Automated Time/Attendance System which warns
of employees approaching OT
– Discuss Converting Salaried Employees to Hourly
with Overtime

Brandi J. McKay
Scheef & Stone, LLP
2600 Network Blvd, Frisco, TX 75034
brandi.mckay@solidcounsel.com
(214) 472-2145

Expected Changes in Overtime Laws, Advice for CPAs

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