DOL

Article Dean Dorton

By: Jen Shah, Dean Dorton Equine Industry Team Leader

As the December 1, 2016 implementation deadline rapidly approaches, we thought it would be useful to farms to provide some reminders on these new regulations and to illustrate their effect on certain farm managerial, executive, administrative and professional positions. Farms, professionals (myself included!) and even local Department of Labor agents have been confused about interpreting the new rules and applying them to farms.

Earlier this year, we issued an article regarding the potential applicability to farms under the final regulations issued by the US Department of Labor to Part 541, which governs certain executive, administrative and professional positions under the Fair Labor Standards Act (FLSA). A link to that article may be found here:

Federal Overtime Regulations for Thoroughbred Businesses

This article takes a closer look at how the updated Part 541 regulations may impact farms, specifically regarding certain manager-level, executive, administrative or professional farm employees who fall below the new $47,476 salary threshold.

FLSA provides for two categories of employees:

  1. Exempt – Salaried
  2. Non-Exempt – Hourly or Salaried

“Exempt” in this context means “exempt from overtime pay.” In order to be “exempt,” an employee must meet the salary basis test (fixed salary not subject to reduction based on the quality or quantity of work performed), the duties test (refer to our prior article for a more in-depth discussion), AND the salary level test. If any one of these tests is not met, then an employee is “non-exempt.” A non-exempt employee must be paid based on hours worked in the pay period plus overtime at a rate of time and one-half for hours that exceed 40/week. The prior statement ignores the general agricultural exemption under Part 780, which is specifically addressed later in this article.

The salary basis and duties tests did not change upon issuance of the final regulations, but the minimum salary level was increased to $913 per week ($47,476 per year) from $455 per week ($23,660 per year). Therefore, if a person meets the duties test but is paid less than the minimum salary threshold, this employee is treated as “non-exempt” effective December 1, 2016.

By converting a prior exempt-salaried employee to a non-exempt employee, the farm is now required to track actual hours the employee works and to pay at the calculated hourly rate based on these actual hours. This creates issues for both the farm and these farm employees.

So how does the above change from “exempt” to “non-exempt” status interact with the agricultural exemption under Part 780, which is available to qualifying employees who perform duties on the farm? As a reminder, the agricultural exemption was not changed by the updated regulations. Under Part 780, employees who are engaged in agriculture continue to be exempt from overtime pay at time and one-half (although KY law requires overtime to be paid to employees who have worked seven days in any given work week for all hours worked on the seventh day).

The updated regulations merely convert certain previously “exempt” employees to “non-exempt” status, requiring that these employees now be paid based on actual hours worked versus a salary. However, the hours worked in excess of 40 hours/week are only required to be paid based on the calculated hourly rate, not time and one-half, under the agricultural exemption available to qualifying employees under Part 780.

Let’s walk through an example of a broodmare manager who makes $40,000 per year, is paid weekly and works an average of 45 hours per week. Under Part 541, the manager meets the duties test of an executive and, as of November 2016, his salary exceeds the $23,660/year threshold. He currently is treated as an exempt-salaried employee and paid about $760/week ($40,000 per year/52 weeks).

Effective December 1, 2016, the manager does not meet the salary test since his $40,000 salary is less than the newly-established minimum of $47,476. Therefore, this broodmare manager is converted from an exempt-salaried employee to a non-exempt employee.

What does the change in status on December 1, 2016 mean for the farm and the broodmare manager? The farm may address this situation in a variety of ways:

  1. Increase the broodmare manager’s salary to the $47,476 threshold.
    1. Pro – Less administrative burden because tracking hours is not required.
    2. Con – Increased expense for the farm.
  1. Convert to an hourly wage using a 40 hour/work week.
    1. The broodmare manager’s $40,000 salary could be converted to an hourly wage, and the manager would be paid by the farm for the actual hours worked in a week. Conversion to an hourly wage per hour is calculated below for this example:
    2. Salary ($40,000) / (40 hours per week * 52 weeks) = $40,000/2,080 hours = about $19/hour.
    3. Therefore, if the broodmare manager works a 40 hour week, he would be paid about $760 ($19/hour * 40) for that week. If he works 60 hours in one week, he would be paid about $1,140 ($19/hour * 60) for that week.
    4. Pro – Keeps base weekly wage the same for the broodmare manager (with increased pay for weeks where greater than 40 hours are worked).
    5. Con – Increased salary expense for the farm and increased administrative burden for both the manager and the farm to track hours.
  1. Convert to an hourly wage using the average number of hours worked/work week.
    1. The broodmare manager’s $40,000 salary could be converted to an hourly wage, and the manager would be paid by the farm for the actual hours worked in a week. Conversion to an hourly wage per hour is calculated below for this example:
    2. Salary ($40,000) / (45 hours per week * 52 weeks) = $40,000/2,340 hours = about $17/hour
    3. Therefore, if the broodmare manager works a 40 hour week, the pay would be $680 ($17/hour * 40) for that week. If he works 60 hours in one week, he should be paid about $1,020 ($17/hour * 60) for that week.
    4. Pro – Attempts to maintain current salary expense consistent for farm.
    5. Con – Broodmare manager will receive less weekly pay in weeks where 40 hours are worked versus what he received previously (farm may consider a bonus to “true-up” the manager’s salary at intervals throughout the year). Increased administrative burden for both the manager and the farm to track hours.

In short, if you are converting a managerial, executive, administrative or professional farm employee from “exempt” to “non-exempt” status, you are required to pay for actual hours worked in a work week, but are not required to pay at time and one-half rates for hours in excess of 40 as long as the employee qualifies for the general agricultural exemption under Part 780.

Note that a ruling regarding a preliminary injunction to implement these FLSA updates is expected to be issued on November 22, 2016 by a U.S. District Court. Another hearing trial could be set for November 28th if the motion is denied. Stay tuned for news on this ruling; however, in the meantime, it is wise to prepare the farm for the December 1, 2016 implementation of these updated regulations.

Please contact me at jshah@deandortonstg.wpenginepowered.com or your Dean Dorton advisor with any questions regarding the above.

Jen Shah, Equine Industry Team Leader

Article Dean Dorton

On Monday, November 14, the United States Citizenship and Immigration Services (USCIS) released the anticipated new Form I-9 (Employment Eligibility Verification) that replaces the current version, which expired on March 31 of this year.

Beginning on January 22, 2017, employers are required to start using the updated I-9 Form (edition 11/14/16) as they review employment eligibility for their new employees.

Employers are required to utilize the I-9 Form to verify the identity and employment authorization for individuals to work in the United States within three business days of the employee’s hire date, for both citizens and non-citizens.

  • On the form, the employee must prove his or her employment eligibility, while the employer must review acceptable document(s) proving the employee’s identity and his or her employment authorization.
  • The list of acceptable document(s) can be found on the last page of the form, and the employer must determine whether the document(s) appear to be genuine before documenting the information on the I-9 Form.
  • Employers are accountable for the proper completion and retention of the I-9 for all employees.

View the New Form I-9

The new form was created in an effort to reduce technical errors and mistakes, which commonly existed on the previous version. As the Department of Labor has increased auditing efforts over the last few years, the most common mistakes found on the previous version of the form are:

  • Incomplete forms with missing information
  • Incorrect date format use
  • Failing to meet the retention guidelines or to complete the form within the required three business days

The new I-9 Form, when used in the Adobe PDF format, is a “smart” form designed to reduce those mistakes and help employers complete and retain accurate I-9 Forms.

A few of the notable improvements and features of the new PDF I-9 Form are:

  • Pre-populating certain fields for employers
  • “Click to Finish” button that reviews the form and notes errors
  • Automating format of birth date and date of hire fields
  • Drop down options to verify acceptable document(s), allowing users to easily identify where information should go

Employers should use the next two months to understand the form’s new functionality and to take the opportunity to determine how internal processes can/should change to maximize the capability of the new smart form.

If you have any questions, contact your Dean Dorton advisor or Jeff Ricketts at jricketts@deandortonstg.wpenginepowered.com.

Article Dean Dorton

In November, the Department of Labor (DOL) began sending emails to plan sponsors alerting them of the importance of obtaining a quality audit from a qualified and experienced CPA firm. The timing of the DOL communication is intended to coincide with the period when many plan audit contracts are renewed or out for proposal.

The Department of Labor letter refers to the recent DOL audit quality study which found deficiencies in nearly 40% of employee benefit plan audits (DOL study found at www.dol.gov/ebsa).  The DOL letter also states that employee benefit plan audits have unique audit and reporting requirements and are different from other financial audits, and that substandard audit work can be costly to plan administrators and sponsors.

According to the DOL study, CPA firms that were members of the AICPA Employee Benefit Plan Audit Quality Center tended to produce audits that have fewer audit deficiencies. Dean Dorton is a member of the AICPA Employee Benefit Plan Audit Quality Center and audits nearly 100 plans annually, including defined benefit, defined contribution and health and welfare plans. Over the past few years, several of the plans we audited were inspected by the DOL with no significant findings.

For more information, contact Jim Tencza, Director of Assurance Services, at jtencza@deandortonstg.wpenginepowered.com.


View Jim Tencza’s Bio

Article Dean Dorton

The U.S. Department of Labor (DOL) recently announced a significant proposed change to the wage and hour rules under the Fair Labor Standards Act.

Background
The current rules generally require employers to pay an employee one and one-half times an employee’s regular pay rate for hours worked over 40 in a work week. However, the rules exempt certain “white collar” employees from the overtime pay requirement.

To fit within this exemption, each of these tests must be met:

  1. “Salary basis test” – The employee must be paid a fixed salary that is not subject to reduction due to variations in the quality or quantity of work performed.
  2. “Salary level test” – The employee’s salary must exceed $455 per week ($23,660 annually).
  3. “Duties test” – The employee’s primary job duties must involve executive, administrative, or professional duties.

Proposed Change
The DOL proposes changing the “salary level test,” increasing the threshold from $23,660 to $50,440 (with a provision for future annual adjustments). The DOL has characterized the salary level test as being the “best single test” of exempt status. Information from the Department of Labor can be found at  https://www.dol.gov/whd/overtime/NPRM2015/.

Impact
Based on 2013 data, the DOL estimates that this change may impact over 20 million workers, about 15% of all U.S. workers. As we understand, no effective date has been established for finalizing the proposed rule changes. A short period for submitting comments from interested parties on the proposed changes closes on September 4, 2015.  Many businesses, industry associations, and other organizations have identified major impacts from the proposed rules, if finalized. Here are just a few such impacts:

  • Employers will be required to reassess exempt status for employees in salaried positions earning less than $50,440 and to strategize about how to address these employees’ situations.
  • Employers may need to revise labor cost budgets and the pricing of their products and services to find the dollars needed for additional overtime pay or adjustments in annual salaried compensation.
  • Employers will need to consider all staffing options to determine the most cost effective manner in which to operate and alleviate the added overtime pay burden.
    • This may include a staffing model favoring more part-time staff.
    • Employers may explore ways to reduce headcount.
    • Employers will need to assess pay practices for seasonal workers and flex-time working arrangements.
  • Employers may need to create new systems and policies to govern the approval and control of overtime work.
  • Employers may need to upgrade or implement technology (software and hardware) to manage the entirety of the payroll process.

For further information, questions, or guidance, please contact Jim Green, Director of Accounting & Financial Outsourcing, at jgreen@deandortonstg.wpenginepowered.com or (859) 425-7615.

View Jim Green’s Bio