Businesses grapple with new DOL overtime ruling

The U.S. Department of Labor’s new rule amending requirements for overtime pay is well-meaning, but a bad idea, according to the Nevada Society of Certified Public Accountants.

“I think that this is not going to fix the issue that the government wanted to fix,” Anna Durst, the incoming CEO of the Nevada Society of CPAs, said in a phone interview.

“It’s well-intentioned but we feel this isn’t necessarily the proper approach.”

The DOL released its “Final Rule” on May 18, dramatically increasing the thresholds for employees exempt from overtime pay.

Under Fair Labor Standards Act, employees who work more than 40 hours in a week are entitled to overtime pay unless they make a certain salary or fall into a “minimal duties test.”

In the past, salaried employees who made more than $23,660-a-year were exempt from overtime. Under the 2016 DOL rule, that minimum salary has more than doubled to $47,476, a 101 percent increase in the threshold, Durst noted.

The 2016 DOL rule also raises the exemption level for what are considered “highly compensated employees” from $100,000 to $134,004 annual salary.

Companies will have until Dec. 1, 2016 to determine which employees to reclassify as non-exempt and to implement the changes. Automatic updates to the thresholds are scheduled to occur every three years, beginning on Jan. 1, 2020.

In Nevada, CPA firms and clients alike are expressing concern about the rule’s impact.

The rule does not take into consideration regional variations. Plus companies with seasonal fluctuations, such as CPA firms and hospitality-based businesses will be especially hard hit.

Newer CPAs just out of school may not make this minimum salary, Durst said.

During really busy times such as tax season, firms would be forced to pay exorbitant overtime. The use of comp-time would also be curtailed, even though many employees appreciate being able to get extra time off in exchange for working extra hours.

“It really takes away the flexibility that people enjoy,” she said. Comp time “can’t be offered anymore, although government agencies can still offer it.”

The DOL estimates that the rule change will directly impact about 4.2 million workers in the United States who are not currently eligible for overtime and may reclassify an additional 8.9 salaried workers as nonexempt.

“The rule may be well-intentioned, but is likely to have unintended consequences,” Sharon Uithove, retiring executive director of the Nevada Society of CPAs said in a press release. “Expanding the pool of overtime-eligible employees will force firms and companies to resort to cost-saving measures to maintain current payroll levels. The Labor Department received 270,000 public comments on its proposal, many from employers who believe the rule will force them to cap workers’ hours, slow the hiring of full-time employees and shift salaried workers to hourly schedules.”

The Nevada Society of CPAs along with the national organization are looking to Congress to intervene in the issue through legislation.

The DOL’s new rule is a result of a Presidential Memorandum issued by President Obama in 2014 directing the department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. The goal was to modernize and simplify the regulations while ensuring that the FLSA’s overtime protections are fully implemented.

An explanation of the DOL’s Final Rule on overtime, including an explanation of exemptions, can be found at: https://www.dol.gov/whd/overtime/final2016/.