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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.
Received 11-01-16
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 -
15 Replies
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I grasp the salary / overtime stuff – I think, anyway.What I do not understand is how this effects flat rate and/or commission employees.Let’s say you pay Fred $10 per hour for 40 hours, then $15 per hour for 5 more hours.During those 45 hours Fred also earned a certain amount of flat rate or bonus or commission. How is that affected / computed? -
Tom, I have a meeting scheduled soon so will better understand how this new law affects my business.
Here’s what I do know. The new law includes all technicians’ pay…including vacation pay. Where we currently pay each tech for the number of labor hours produced, that formula just got complicated. The challenge is each tech must be paid an hourly rate so if we paid Fred (as we currently do) $30 per hour and he produces 40 hours, he grosses $1,200. Having said that, if he clocked in 44 hours, we must pay him $45 per hour for each of the 4 hours he clocked. The bottom line is that Fred’s hourly rate must be continually adjusted to make sure his overtime hours combined with his base rate of pay don’t exceed his actual $30/hr rate. That’s not to say that we cannot figure this out..it simply forces our office manager to review each week’s payroll for each technician and compare it with the specific number of hours clocked. Billed hours establish the actual total pay, but the numbers must work when the DOL audits as we have been told they are strongly going to do. I’m not concerned with techs’ pay as my guys always make more than $47,476 per year, but its the math that will be confusing…at first.
Why the change? Walmart! Walmart Corporate stopped employees from clocking in when they arrived early to make sure they did not exceed 40 hour work weeks even tho they worked more than 40. I get that. But for those thousands of support staffers who may work more than 40 hours per week and are being paid less than $47,476 per year, they will see an automatic increase in pay, which equates to additional taxes the Government captures from the retail industry and affects small company profits. When I learn more, I will post.
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Another thought. If we pay Fred $30 per hour and he produces 40 hours, his gross is $1,200. But when/if he clocks 44 hours, we must then adjust his base rate to compensate for the “overtime” $45 per hour rate. His overtime rate will float whenever he clocks more than 40 hours per week, which means in reality he has no standard base rate. The challenge with this law is it forces small business to go through additional steps for each full time employee grossing less than $47,476 per year.
I am disappointed that there have been no comments here other than Tom’s re this law…as this law is national and will affect every business in America staring 01/01/2017. I assume our colleagues are not familiar…but they soon will be. I certainly don’t want to waste anyone’s time here…mine included!
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Maybe I’m way off base here, but…
I use a graduating bonus plan to pay for billing more than a tech’s weekly “average”. In other words, if the tech is averaging 35, and they bill 45. I would have paid them a “bonus” (which is a bump in their hourly pay) from 35-40 and from 40-45.The only thing I can see this affecting is if my total pay out is LESS than what hourly plus OT would have been. Of course, this is assuming the tech was clocked in a total of 45 hours.If he accomplishes this in 40, then there is no issue. But even if he doesn’t, as long as the money is correct, what difference does it make?Or is the law requiring that I now label it as hours + OT rather than base + bonus?I hate it when the government gets involved in things… Can’t ever leave well enough alone. -
David said: “Or is the law requiring that I now label it as hours + OT rather than base + bonus?”As I understand it, that is what is required. Whatever the bonus rate is, you must pay 1.5 X the bonus rate for hours over 40.Good luck with that.Kinda like Rubik’s cube…
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Wouldn’t that incentivize me to eliminate my bonus altogether?
Also, is this only affecting clock hours or does this apply to flag hours as well? -
First, I don’t think anyone knows for sure yet. However, it has been suggested that if you pay flat rate or some other incentive system, and a tech works more than 40 Hours (not produced, just at work), then any flat rate pay earned during the overtime hours would have to be paid at 1.5 × whatever the regular FR is.
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I’m curious how this will affect front office people. My service advisors make over $47,476 however they tend to work more hours a week than everyone else as well.
Also if we continue to pay our people based on flag hours or a tiered system, do we have to change on a weekly basis what their “hourly” pay is to fit within the math of the new regulations? What would we have to do to document the weekly or bi-weekly change in their hourly wage? Would that be legal? is it “cheating” in the eyes of the DOL? -
I was involved with a 20 group in the past and they always warned that the DOL (state or federal) could challenge how flat rate is computed. In the past, as long as any employee calculated to more that minimum wage, there wouldn’t be any trouble. My opinion is that if you simply calculate your tech’s flat rate pay dollars and make sure the clock hour pay rate is equivalent including overtime that there shouldn’t be any questions as you are not “shorting” any employee. All of our hourly employees have always received overtime pay. We have all our techs punch a clock for in/out daily. (We also do time tracking for productivity/efficiency) so all time is already documented. Most shops should consider the basic in/out time clock to verify attendance and overall time available to work. My 2 cents.
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You guys are making it way too hard. Very simple. IF you are paying a person salary over or under the 47k amount you need to pay attention.
IF you have your staff on hourly like I do-nothing changes.IF you are paying someone under 47k, then figure it out by the hour or give them a raise!If you pay them more than 47k then work them to death!!! -
All flat rate techs will have to be paid by the hour. i have a spread sheet conversion formula as created yesterday by my CPA. The problem with this law is if you have a tech who had a bad week and only turned 15 hours, which at $25/hr…or perhaps a lube tech at a lower rate. The lowest pay check you can give him is $473.00. This figure is based on 52.5 hours which is the norm for our shop. 7:15am – 1 hr lunch – 5:45pm punch out. That’s 40 hours minimum wage plus 12/5hrs at 1.5 min wage.
Questions? This law begins December 1st, 2016.
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Re: My statement above. To be clear, a tech producing 15 hours at $25/hr would gross $375 (granted this is low, but it does happen at times). Under this new law, you must pay him at least $8.05 per hour for the first 4o hours plus $12.05 per hr for all hours over 40. At our shop, techs arrive at 7:15am clock out for lunch 1 hour then clock out to leave work at 5:45pm, which equates to 52.5 hours per week or 12.5 overtime hours.
That’s where we get the 52.5 total hours and the $473.00 paycheck. Stay with me. So, for every week that a tech does not produce at least more than $473, the company subsidizes the tech, regardless of whether or not the following week that tech made $1500 based on hours produced. Confusing…not really, but the law says every employee must clock in and out so commissioned techs are included. As for office staff, how many of you pay more than $47,475 annually? And of all office personnel, how many work more than 40 hours per week? -
Opps…here’s another point to ponder. Say your service advisor makes less than $47.476 per year salary. While his total pay (including monthly paid bonuses) may ultimately meet the $47,476 rate, his =bonus pay is not 100% applicable. Facts is…ONLY 10% OF ALL MONTHLY BONUSES can be applied to the weekly paycheck under this new law.
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My accountants advise was pretty simple, just don’t let anyone work overtime. If I am that busy, hire another person. Then it’s a non factor
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