DOL New Labor Law Threatens Service Industry
Below is the e-mail I received today from my CPA. The bottom line is my Technicians who work on a per/hours/billed commission will no longer have that option. I understand that I could pay a person minimum wage and then a bonus at the end of each week to make up for actual hours billed, but the math and formulation cost is very problematic.
ALL: Please read this message (below) and provide me your thoughts. My 45 years in the business and this new wage rule may force me to take an early retirement. I currently have more work than technicians can handle. But it’s very discouraging when something like this new law grabs you by the throat.
Good afternoon, Bobby – this is Steve S over at Donna’s office. I had a conversation with Jan today about the new overtime regulations and I wanted to make sure that you were both aware of the rules that are set to take effect as of December 1, 2016.
Beginning on that date, any employee who is being paid a salary of less than $47,476 per year must be paid overtime if they work more than 40 hours per week. (This is more than double the previous limit of $23,660.) If you have any employees that you are paying a salary of less than $47,476 per year, you would need to start paying them overtime for any hours worked in excess of 40 hours.
Additionally, because you have two different companies with common ownership (referred to as a Controlled Group), hours worked for either company are considered to be worked in one lump sum total. In other words, if an employee worked 20 hours for the service company and 22 hours for the production company during the same week, they would have worked 42 total hours for the controlled group, therefore 2 of those hours would need to be paid as overtime at the time-and-a-half rate.
Because of this rule change, many employers are considering changing employees previously paid by salary to hourly employees. That provides the employer the benefit of only paying for actual hours worked since they would now be locked into paying overtime.
I had recently discussed this with Jan and the applicability to her. Since she works 40 hours during the week and then some time over the weekend, she would be considered to work more than 40 hours and thus subject to overtime. With her regular hourly wage rate being $13 per hour, any overtime would need to be paid at $19.50 per hour assuming her wage is the same for all work performed. Based on the previous pay arrangement, I believe if she worked slightly more than 2.5 hours on Saturday, the math works out to her being paid the same amount she already is.
You will want to analyze your pay structure for both companies to determine if any other employees are affected by this as soon as possible so that you can take action if needed.
Additionally, we strongly recommend that any hourly employees be required to use some method to record their hours worked/in & out times, preferably some sort of time clock system (whether the old punchcard/clock combination or a newer computerized system). This is very important you’re your documentation purposes.
I know this is a lot of information, and frankly there are potentially even more considerations beyond what is in this email. If you have any questions on any of this or want to discuss it further, please feel free to reply or call. Thanks much, and have a great day.
Bobby Likis’s CPA