Who’s been hitting the books? RBI’s Chris Smith has been, that’s who! He is always brushing up on new tax rules that will impact our amazing clients. He does the studying so he can keep you informed, up-to-date, and out of trouble with the IRS.

Here is a big change to the tax law in 2020 that impacts employers that Chris wants to share with you. Overtime rules have changed! The criteria for which employees qualify for being exempt has been updated, as of January 1, 2020.

First, let’s do a quick review about what it means to be “exempt” and “non-exempt.” If an employee qualifies to receive overtime pay, they are considered to be “non-exempt.” However, if they are not eligible to receive overtime pay, they are considered “exempt.”

Want to know if your employees will qualify as exempt or not in 2020? If so, here are the questions to ask based on two new rules from the IRS.

Here are the questions:

1. Does your employee earn less than $684 per week ($35,568 per year)?

If your answer is no, your employee is considered to be non-exempt.

If your answer is yes, please review and answer question 2:

2. Does your employee direct the work of 2 or more employees?

If you answer “yes” for both questions 1 and 2, your employee is considered to be exempt.

If your answer is “yes” for question 1 but “no” for question 2, your employee is considered non-exempt.

It’s important to know that this impacts all employers! Often non-profits are excluded from many tax changes, but this one impacts everyone! Nonprofits are NOT excluded from this change.

To give you some background, this change to the overtime rules was first proposed under President Obama, but they were held up in the court system starting in December 2016. The Department of Labor made the final changes on January 1, 2020.

 

We have included the details for these rules here if you want additional information:

1. The “standard salary level” threshold for white-collar exempt employees will increase from $455 ($23,600 per year) to $684 per week ($35,568 per year). That means starting January 1, employers will need to pay overtime to employees who earn less than $684 per week ($35,568 per year).
2. Direct work of 2 or more employees – This threshold applies to non-executive, administrative, or professional (EAP) employees (i.e., white collar employees) who earn at least $684 per week and whose primary duties involve performing office or non-manual work and include at least one of the duties of an EAP employee (e.g., directing the work of two or more employees). The duties test did not change from the current rule.

We’re so glad that Chris is always on top of what you need to know about your taxes for your business. If you have any questions about this new overtime rule, or any other tax questions, please contact RBI Services or Community First. We’re here to support you!