Is your employee exempt or non-exempt?

We take care of other businesses accounting work so you can build your business better numbers. Here, we’re going to discuss the new 2020 overtime rule changes that were implemented by the US Department of Labor. We’re going to discuss what the changes are a little background on the exempt from overtime obligations for non-exempt employees consequences of a specification and what to do as an employer. 


Let’s explore them for an overtime rule change.

  1.  The first thing to note is that these will take effect on January 1st, 2020, and the changes are summarized as follows. There is an increase in the minimum salary requirement and increased to what is defined as highly compensated employees a new bonus and incentive limit component for salary and finally revised special salary levels. Now, let’s go into the details of each one of these. He’s the first rule around the minimum salary for exempt employees is increasing to $684 per week or 35,000 568 for years. Now. This is up from $455 per week or twenty-three thousand six hundred and sixty dollars per year quite a big bump.


  1.  The second change is around highly compensated employees the total annual compensation for highly compensated employees is increased by 107 thousand four hundred thirty-two dollars per year. Now if you want to know what the highly compensated employees are going to talk about that a little bit later. 


  1. The third change is around a bonus incentive limits employers can use non-discretionary bonuses and incentive payments for up to ten percent of the salary level. So you could have a lower base salary for employees and then have an annual bonus that makes up for the lack of the addition of percent. 


  1. Finally, there is Sandra by special salary levels that relate to US territories as well as the motion picture industry. Thank you can see the territories have lowered wrestles and the motion picture industry. 


Exempt Classification


So let’s give a little background on the exempt classification. The exempt classification is Non-manual white-collar work and qualifies in three ways and they have to be all three ways. 

  1. The first is that an employee has to be paid in a fixed hour so you have to have a standard base salary.
  2.  They have to meet the minimum amount. Now as I mentioned around the rule change that mount has gone up in 2020. 
  3. The final element is the one that most companies used if they have to use anything which is the duties test. So their work has to meet a duties test based on the different job roles that they’re in now. 

The Department of Labor has rules for each one of these roles. Let me just give you an example of professional duties. So the professional duties and I’m going to have put up here at the language from the Department of light labor, but I’ll translate it. So the first one is this Colonel they’re doing intellectual work. They’re having to exercise discretion and judgment. So something you would expect from a knowledge worker. This work is in a field of science or learning or it could be something like a professional such as an accountant like we are Ledger gurus. We do accounting services and the advanced knowledge must be customarily acquired by belonging to a course of specialized intellectual instructions also known as a lot of college or study. So let me give an example as I mentioned we are a professional business. We have many accounting professionals. Some of our professionals are doing work that requires discretion and judgment. They are doing a field of knowledge and the accounting profession and it requires a prolonged course of specialized instruction. So some of our work requires CPAs or CPA equivalent education. Those individuals would qualify Now we have other individuals who are bookkeepers that may be doing more routine work that doesn’t require as much discretion and judgment. They would not qualify. If you want to see all the duties test. You can go to this URL for the Department of Labor. One thing we will note is you may want to talk to a labor lawyer.

 If you have questions about certain employees, that would not be yes and help you with the accounting around these employees, but probably not Just wanted to tell you whether they need to do these tests. Now. There’s an additional exemption which is highly compensated employees. These are employees doing officer non-manual work paid over a hundred seven four hundred thirty-two thousand dollars and they perform at least one of the duties and one of these categories now, let me take my example of a bookkeeper. Let’s say my bookkeeper is doing work requiring accounting knowledge and I’m paying them a lot but they don’t have the education. Maybe they’re not doing what happens to require the amount of discretion. I could treat them as highly compensated employees and make them pay overtime now, 


Now for those that are not exempt what are your overtime obligations, any non-exempt employees must be paid at least 1 Point 5 the regular pay time, and a half of this common nose for any hours over 40 and work week and work. We can be determined by the employer but it must be constant. So you could have your work week be Monday to Sunday Wednesday Thursday. It could be Wednesday at noon till the following we get Wednesday at noon as long as you’re consistent. That you can Define your workweek every watch.

Let’s talk about these classification consequences for any of those of you that attempted to classify. Your employees are the wrong way. Now. I’m not a lawyer. We don’t have a lot of experience working with companies who encountered this but I can speak from research and understanding the regulations essentially think about it this way if you classified a non-exempt employee as an exempt employee and did pay their overtime. You have an obligation to them first. First, you did not pay them that time and a half but they did secondly you have an obligation to the government. So think about it, some taxes were not paid lunch that comes with penalties fees back interest that you owe and so it’s a bad idea to try and play this game. It only takes one complaint by an employee to bring an Avalanche of a financial obligation not to mention other criminal penalties that might be associated with something like that. 


So don’t classify your voice right now. Finally. Let’s talk about the next steps. If you’re an employer first, I would say review all of your exempt employees to see if they need the new salary limits for anyone that is under the limit. You have two options. Number one gives them a raise to change them to non-exempt and begin tracking your time and overtime when applicable. This can be a complicated decision for people that are on the edge of the classification after you have to help them.

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