The new regulations double the threshold pay for exempt employees, from $455/week to $913/week, or $23,660 to $47,476 for an employee who works the full year. Beneath those amounts, employees qualify for time-and-a-half pay after 40 hours of work in a week, even if they are on salary. According to payroll processor Paychex, retail businesses may have quite a number of managers whose earnings fall between those yearly amounts.
Retailers have a number of ways to handle the new rules:
Eliminate Overtime. Have hourly and salaried employees who are nonexempt under the new rules track their hours carefully, and make sure they don’t exceed 40 hours a week. This approach may be disruptive if staff are used to taking their own initiative to get the job done, regardless of hours worked. And you may need to hire new part-timers to fill in any extra hours you need covered. But it will keep your payroll relatively stable.
Business as Usual. Allow staff to work overtime when necessary, with your approval, and pay for it. It’s worth considering whether any addition to your payroll costs may be balanced by keeping a strong successful team together and motivated.
Raises for Some Exempt Employees. Think about giving previously exempt employees who earn more than $23,660 but less than $47,476 a raise above the new threshold, making sure they meet the current duties test for exempt executive, administrative and professional employees (see dol.gov/whd/overtime/fs17a_overview.pdf for details). That way they’ll remain exempt—business as usual. This especially makes sense if they’re close to the new threshold anyway and are key staff.
Change It Up. Keep the salary of an employee who’s newly below the threshold the same but convert them to nonexempt hourly pay, at an appropriate rate, having them keep track of hours and paying overtime when appropriate. Make sure any changes are applied equitably to all employees you’re converting. And think about how this change will affect morale, since some might see a change in the way they’re paid as a demotion.
In general, storeowners need to review their payroll systems (and maybe make changes) so that employees can track their time, whether with a time clock, time sheet or other system. Your payroll company can help out with proper record-keeping systems and compliance with the new regulations.
And you need to communicate positively to your staff. Put your overtime pay policy in writing, advises Paychex, including whether employees need to get approval for overtime in advance, and who can give that approval. Whether overtime is approved or not, it must be paid, so it’s worth establishing clear rules up front and training your staff in how the new system works.
The salary threshold will be adjusted automatically every three years for inflation. Paychex estimates it will rise to $51,000 with the first update in January 2020. For more information, see Paychex’s guide at: paychex.com/a/d/white-papers/payroll/whitepaper-flsa-overtime-guide.pdf.
December 31 closes the 2016 tax year and, for many businesses, their fiscal year as well. So now’s a great time to organize yourself for the biggest tax savings and make some smart plans for the year to come. Here are just a few checkpoints to focus on this month:
Review your profit and loss statements. This financial snapshot just before year-end will help you decide whether you should accelerate a planned purchase to before the end of the year, so you can depreciate it on this year’s income tax, or whether it makes sense to sock more money into your retirement plan.
Reconcile all your accounts so you have an accurate end-of-year financial picture. Right after the new year, you or your bookkeeper or accountant will need to print out end-of-year statements for tax preparation, so why wait to tie up any loose ends?
Sketch out a budget for next year. With this year’s results fresh in your mind, you’ll begin to see where you might want to make investments for growth and where you could make some cost savings.
Verify your files on employees and independent contractors, updating addresses and making sure you have all the information you’ll need to prepare W-2s and 1099s in January.
Consider taking advantage of a Section 179 deduction. It allows small businesses to expense certain new equipment purchases in the current tax year rather than depreciating them. To elect the deduction, you need to purchase or lease any equipment (new fixtures, computers, off-the-shelf software, furnishings and so on) and put them into service by December 31. The deduction is now set permanently at $500,000. For all the fine print and a tax-savings calculator, go to: section179.org.