By Car­ol Taylor
Direc­tor of Com­pli­ance and Health Plan Collaborative,
D & S Agency, A UBA Part­ner Firm

SafeHarborThe new Depart­ment of Labor (DOL) over­time exemp­tion rules increase the salary thresh­old from $23,660 a year to $47,476 annu­al­ly, begin­ning Decem­ber 1, 2016. This means that employ­ees earn­ing less than the thresh­old can no longer be con­sid­ered salaried and exempt from over­time pay.

While the DOL has indi­cat­ed that the reg­u­la­tions will have a min­i­mal effect on wages, there are oth­er fac­tors not tak­en into account in their impact esti­ma­tions. Employ­ers need to be mind­ful of sev­er­al employ­ee ben­e­fit clas­si­fi­ca­tions, as well as the poten­tial impact on oth­er laws, such as the Patient Pro­tec­tion and Afford­able Care Act (ACA).

First and fore­most, employ­ers need to revis­it their ACA afford­abil­i­ty cal­cu­la­tions and safe har­bors now.

There are three afford­abil­i­ty safe har­bors for the ACA that employ­ers use to sat­is­fy the require­ment to offer afford­able, min­i­mum val­ue cov­er­age or face the employ­er shared respon­si­bil­i­ty tax­es and fines. Since employ­ers don’t know and aren’t allowed to ask about fam­i­ly income, the reg­u­la­to­ry agen­cies devel­oped the safe har­bors to com­pen­sate for that lack of information.

The three safe har­bors are the Fed­er­al Pover­ty Lev­el safe har­bor, the W‑2 Box 1 earn­ings safe har­bor, and the rate of pay safe harbor.

The safe har­bor applies to the sin­gle-only pre­mi­um of the low­est cost plan offered to employ­ees, even though they may enroll in a dif­fer­ent tier of cov­er­age or plan. To deter­mine the safe har­bor amounts, the reg­u­la­to­ry agen­cies set the per­cent­age used in the cal­cu­la­tion. For 2014, the amount was 9.5 per­cent, in 2015 it was 9.56 per­cent, and for 2016 is 9.66 percent.

To cal­cu­late the safe har­bor, the employ­er would choose the one that best applies to them. There are some cas­es where employ­ers don’t have a choice between meth­ods because of the inter­play between the reg­u­la­tions and the way employ­ees are com­pen­sat­ed. For exam­ple, many restau­rants will have to use the W‑2 Box 1 safe har­bor instead of the rate of pay safe har­bor due to restric­tions on the use of rate of pay for employ­ees who receive tips.

Since many employ­ers use the rate of pay safe har­bor for afford­abil­i­ty, they need to account for the change from salaried to hourly cal­cu­la­tions. For exam­ple, in the case of a salaried employ­ee cur­rent­ly mak­ing $25,000 per year, the new over­time exemp­tion rules require that the employ­ee be reclas­si­fied as hourly since he or she earns less than the thresh­old. Being salaried, the employ­ee cur­rent­ly can­not pay more than $201.25 per month, or $46.45 per week, for cov­er­age ($25,000 divid­ed by 12, times 0.0966).

How­ev­er, now that the employ­ee has to be reclas­si­fied as an hourly employ­ee, the employ­er can only use a 30-hour week to cal­cu­late afford­abil­i­ty, even though the per­son may work 40 hours. The employee’s $25,000 annu­al salary is equiv­a­lent to $12.02 per hour ($25,000 divid­ed by 2,080, which is 52 weeks times 40 hours). Using the 30-hour work­week (130 hours per month), the afford­abil­i­ty num­ber now becomes $150.94 month­ly, or $34.83 per week (130 hours times $12.02 is $1,562.60, times 0.0966).

Sim­ply put, pri­or to the DOL rule, this employ­er could charge as much as $201.25 a month for the low­est cost employ­ee-only plan for an employ­ee mak­ing $25,000 a year. Under the new rules, and the forced change to an hourly rate of pay, this employ­er can only charge up to $150.94 a month for the low­est cost employ­ee-only plan.

This could cause fur­ther finan­cial strain on the employ­er, if it must mod­i­fy its con­tri­bu­tions to med­ical plans to bring them into the afford­able range, which is a dif­fer­ence of more than $50 per month, per employee.

Employ­ers should review their afford­abil­i­ty cal­cu­la­tions, now with the under­stand­ing that their pol­i­cy renew­al time may not be until after the new over­time exemp­tion rules go into effect. This also affects when advance notice must be giv­en to the affect­ed work­ers. In most cas­es, this is no lat­er than 60 days pri­or to any changes regard­ing ben­e­fit plans or con­tri­bu­tions. The advance notice could also be prob­lem­at­ic when employ­ee con­tri­bu­tions are made pre-tax, as in the case of cafe­te­ria plans.

For employ­ers using the look-back method for track­ing and count­ing hours, it is imper­a­tive that they look at those poten­tial changes now, before going into an admin­is­tra­tive peri­od and sub­se­quent sta­bil­i­ty peri­od. Employ­ers using the mea­sure­ment and look-back method are very lim­it­ed in the cir­cum­stances that allow an employ­ee to be moved from full-time to part-time sta­tus (and thus, dropped from ben­e­fits) dur­ing a sta­bil­i­ty period.

Like­wise, if oth­er ben­e­fits are classed, it could also affect employ­ee eli­gi­bil­i­ty for cov­er­age. Many times life or dis­abil­i­ty cov­er­age is dif­fer­ent for salaried ver­sus hourly employ­ees. This could result in a loss of ben­e­fits for some employees.

Employ­ers need to plan for these changes now, since Decem­ber is like­ly a very busy time for most employ­ers with end of year respon­si­bil­i­ties. Make sure you know what changes will need to occur before the require­ment sweeps in on Decem­ber 1, includ­ing any advance noti­fi­ca­tion requirements.

For more infor­ma­tion, down­load UBA’s Com­pli­ance Advi­sor, “Over­time Exemp­tion Rules Arrive”.

Read more here …