The Department of Labor is not usually something that equipment finance companies have to deal with. However, new rules about overtime payment could change that. ECS Financial Services’ Kimberly Siegel explains a critical rule change and the implications.
The U.S. Department of Labor (DOL) — it isn’t just for blue-collar workers anymore.
Starting December 1 of this year, any employee who is paid less than $47,476 per year — even full-time, salaried workers — could be eligible for overtime payments from their employer for time worked beyond 40 hours per week. This is happening as a result of new overtime rules passed earlier this year by the DOL that raised the overtime threshold from $23,660 to $47,476, and it stands to impact as much as 40% of the U.S. workforce.
Salary levels are just one prong of this issue. The duties that employees perform (the “duties test”) are also part of the consideration. In fact, even for employees that are above the new salary threshold, employers will have to look at the duties they perform to determine if they are entitled to overtime pay. There are exemptions from overtime available for executive, administrative and professional employees, however the application of these exemptions are very narrow and should be looked at on a case-by-case basis.
Not surprisingly, this is creating a ripple effect that will pass through just about every industry in the economy, including white-collar businesses like accounting firms, medical offices and software companies.
Why? Because even at higher-paid, salaried companies, there are likely employees —administrative assistants, IT techs or entry-level college graduates — making less than $47,476 per year. That wasn’t as likely to be the case when the threshold was $23,660.
As a result, there is a good chance that managers and executives at these companies aren’t yet considering the impact that these new DOL rules will have on their bottom lines, in part because labor laws are more often associated with occupational safety cases, workplace conditions, and organized labor relations — hardly the stuff of the typical office job.
But this time it’s different.
Consider, for example, the impact that this new overtime threshold could have at my company, a typical accounting firm with about 50 employees. Not surprisingly, some seasons are busier for us than others, particularly the months leading up to the tax filing deadline in April. Let’s say someone works 100 hours of overtime around tax time; as it stands right now we offer them comp time that they can take off whenever they want to make up for that extra work. With that 100 hours, an employee can feasibly take Fridays off for the rest of the year.
It’s a benefit that our employees enjoy and it works well for our business.
But soon we won’t be able to offer this arrangement as we have in the past. Assuming the employees meet the duties test, if their salary is under the new threshold, we would be required to pay them overtimes rates or face stiff penalties from the DOL. Under the law, comp time is not the same as overtime pay.
In our case, we do not have many employees who fall under the $47,476 limit, so the impact to us will likely be minimal. But consider what this new threshold will mean for restaurants, landscapers, painters or small construction companies. There you’ll have a supervisor who is making $40,000 year overseeing the work of a dozen hourly workers. This new rule will impact them severely. They’ll have to change the way they pay people, or limit the number of hours worked, especially for those who may have been working long hours all along without extra pay.
This change will create an extra bureaucratic burden for employers that few likely even see coming.
Granted, the overtime rules have always been in place. But, with the salary threshold increase, it has become something that all businesses now need to look at to make sure they’re in compliance.
What don’t white collar employers know yet?
The penalties are steep: The fine for violating the overtime pay laws can be harsh. In addition to back pay due to an employee, employers can be assessed an equal amount of liquidated damages and civil penalties up to $1,100 per employee, per violation, for willful or repeated violations. Depending on the size of the company and its revenues, this could very well put some employers out of business
The dollar figure isn’t all that matters: Employers can’t simply pay an employee a higher salary in order to avoid the overtime requirement. Their job description and level of authority needs to be assessed, as they may still be eligible for overtime. In fact, the DOL has lists of specific requirements for each position. Managers, for example, need to actually manage two or more people in order to qualify for a management exemption. If they don’t have that many direct reports, but are still being paid at that level, then, under DOL rules and depending on their actual duties, they may still be due extra pay for any overtime worked.
This isn’t optional: The Department of Labor doesn’t audit every company in America every year. Rather, it responds to complaints from workers. In the event of a complaint, the agency will visit a company and request payroll records to see what employees are being paid, what hours they are working, what their job descriptions are and more. They will also interview select employees regarding the company’s overtime pay practices. From there, the DOL will make a determination based on salary and job duty to determine if each employee is exempt from overtime or not.
These new regulations are going to catch some employers, especially those in the professional sector who have not had to deal with the DOL before, by surprise. The time to prepare for compliance is now.
The core purpose of a UCC financing statement is to give notice to secured parties, lien creditors, purchasers and other third parties that the secured party identified in the financing statement claims an interest in the collateral described in the... read more
The future of equipment financing reminds me quite a bit of college — biking in college, to be specific. Let me explain. Many college students work summer jobs in the weeks leading up to freshman year, saving money to meet... read more