Payroll and HR Knowledge Center | QTS Payroll Resources

The recent U.S. Department of Labor (DOL) ruling modifies the provision in the Fair Labor Standards Act (FLSA) exempting certain kinds of “white-collar” employees from the Act’s minimum wage and overtime pay requirements. This change, effective July 1, impacts a broad range of employers across the country and results from a Supreme Court decision in February 2023 involving an oilfield worker and his employer.

The FLSA establishes minimum wage, overtime pay, recordkeeping and youth employment standards, and affects employees in the private sector and in Federal, State and local governments. It requires overtime to be paid at a rate of time and a half to covered employees working more than 40 hours in a week; however, executive, professional and administrative employees paid on a salary basis are exempt from this requirement. The new DOL rule raises the earnings threshold as one component of the test for the exemption and establishes a mechanism for future increases.

The Supreme Court’s decision addresses the exemption for executives who are considered “highly compensated” with an annual salary of $107,432 or more. Even if an employee meets the “highly compensated” threshold, the worker can still qualify as non-exempt under the FLSA if his or her paycheck is based on a daily rate of pay rather than a predetermined, fixed salary. In such cases even a highly-compensated employee will be classified as non-exempt as occurred in the case of the oil field worker. To be exempt from overtime under the white-collar exemption, criteria considered include the threshold salary amounts plus a duties test. If employees are paid at a lower amount or do not qualify under the tests, they must be paid overtime at 1.5 times the regular hourly rate for time worked that exceeds 40 hours in a workweek.

The FLSA is generally applicable to employees at organizations with annual gross sales of $500K or more. However, it also applies individually to employees working in interstate commerce or producing goods for commerce. Regardless of the annual gross sales amount, the FLSA is applicable to some types of organizational categories as a whole, whether profit or not-for-profit, including hospitals, entities providing residential medical or nursing care, schools and public agencies. The DOL regulation includes a two-part approach to implementing the change, providing employers with options of how to adjust the pay of exempt employees. Effective July 1, 2024, the annual salary minimum for white-collar exemptions to overtime requirements will increase from $35,568 to $43,888. As of January 1, 2025, this baseline will rise to $58,656 annually. Employees making less than the threshold can be eligible for overtime based on the number of hours worked. This rule will affect millions of workers and represents a baseline increase of nearly 65% by 2025, a change that could have significant budget impact for many employers. In addition, the overtime threshold will be increased automatically by the DOL every three years starting on July 1, 2027.

What are the tests for bona fide exempt executive status and a highly-compensated employee?
The employee must:

receive his or her earnings on a predetermined, fixed salary basis and not be subject to reductions due to variation in quality or quantity of work
perform at least one of the following duties regularly:
- managing the enterprise
- directing other employees
- exercising the authority to hire and fire

Employers impacted by the FLSA must also keep time and pay records for each covered nonexempt worker with accurate information about the employee and data about hours worked and wages earned.

The July 1effective date is quickly approaching . It’s time to take action.

Immediately review payroll practices to determine if the new ruling will impact any employees and/or classifications. Keep in mind there may be additional State and local laws that impact exempt status and overtime.
Work with your human resources and compensation specialists or choose to obtain outside wage and hours expertise for this review, such as employment legal counsel.
Decide about possible salary adjustments for those employees impacted so they can remain exempt. In other words, will you raise the salary of employees who earned above the overtime salary threshold under the prior standard, but now will be below it?
Will you choose to comply with only the 2024 threshold now or also with the 2025 level?
As an employer, you may choose not to raise salaries. Rather, you may pay overtime to these employees when they work more than a 40-hour workweek. You may also decide to adapt schedules for these employees to limit overtime expense.
Plan your salary and overtime budget requirements for the changes.
Modify internal policies and operational processes to reflect compliance with the regulatory changes and to guide employee decisions. Make needed changes in the payroll and human resources systems.
Verify that your time and pay tracking and reporting systems are in compliance with FLSA requirements.
Plan for implementation including training for employees on time-keeping requirements and rules against off-the-clock work.
Use clear internal communications throughout the process to explain the reasons that formerly-exempt employees are now being classified as non-exempt. Be ready for questions and possible employee relations concerns, especially from those whose status will be changing.

When combining organizations, there are thousands of people and operating details to consider. While some decisions are significant, others seem routine and get little attention although may have substantial impact on processes. Inadvertently, these may be overlooked when handling the almost overwhelming number of tasks in joining two organizations. Payroll and human resources systems is one example. Not only can missed details affect the time and expense of processing, it can also result in costly errors and compliance concerns, and cause gaps which affect employee retention.

Where should you begin? First, you need a well-thought-out plan. You also need enough time to properly handle the key steps. For smaller organizations, 90 days is usually the minimum lead time while the process may take 6 months or more in large organizations. Implementation often takes longer than anticipated and there may be delays due to unforeseen issues, such as those in the legal or regulatory arena. While it’s important to take action quickly, be sure to build in sufficient time for due diligence and coordinating your well-thought-out plan of action with the larger organizational-change roadmap. Here are a few of the many payroll-related questions for your team to consider during the planning process:

Compensation

Do the compensation plans of the two organizations align?
Will you use one of the existing salary scales or create a new one?
How will you address gaps in pay ranges between the two organizations?
Will you review the salary scales for equity and market competitiveness issues?
Are there pay policy changes identified that haven’t yet been implemented? Should modifications be made for the new organization?
Do employees have incentive plans that need to be paid or rolled forward?
Are there stock option or restricted stock plans to be accommodated?

Payroll Systems and Partners

Will one of the existing payroll and human resources systems be used or will a new one be selected?
If using an existing system, does it have the full range of features and services needed to serve a larger organization? Or would another platform be better suited for the future growth of the company?
Are you happy with the services and responsiveness provided by the current technology partner? Or could another provider better serve the range of needs of the joined organization?

Reporting

How will you handle year-to-date tax and wages migration? Will you do it inhouse or will you ask your payroll company to do it?
How will you process W2s/W-2c’s creation and distribution?
What steps are needed to avoid risk of SUTA dumping and FUTA issues?

Leave Time

Will Paid Time Off (PTO) balances be carried forward?
How will sick time off balances be handled for specific jurisdictions that require reporting?
What about FLSA or ACA audits and inquiries for the prior organizations?

When an organizational merger or consolidation is planned, it is also an optimal time to consider a platform that is more adaptable and robust than exists now at either of the two organizations. Each entity may have tolerated frustrations and work arounds in the current system or working with a provider that isn’t living up to expectations. The internal team may have adapted out of necessity. Although admirable, there is not a reason to bring a less-than-adequate system to a combined organization and orient new staff on dealing with these issues. It is an opportunity to choose a provider that better fits the needs of the joined organization, one that will now serve more people and in more locations.

More flexibility can also be added, such as offering employee self-serve and mobile functionality, timekeeping or pay cards. Choosing these or some of many other options will save valuable hours and expense in managing payroll while also increasing employee happiness. Integrating payroll with a full Human Resources Management System can also be considered. Your team will have the ability to manage employee processes through an intuitive system that combines all staff functions and data in a single platform. During a time of organizational change, choose your payroll and human resources technology and partner wisely to meet the needs of the organization at the time of implementation and for its future growth. The transition process and support provided to your team is also a crucial factor.

Combining organizations and merging payroll systems have many more intricacies --- and ramifications --- than what most organizations expect. A consolidation or merger is the time to do it right.

New pay transparency regulations have exploded during the past year. Provisions are now in effect in states stretching from New York and Rhode Island, to Washington, Colorado and California with proposals being drafted in many more. Experts expect the growth of salary transparency legislation to continue in the foreseeable future.

Even in locales with laws already in effect; however, not all organizations have taken action. A compliance researcher in the technology sector, as reported by Forbes, discovered that only about 39% of the companies in California have implemented the regulations; the total is higher at about 48% in Washington and 63% in New York City. On the other hand, the survey also found that 17% of companies are already disclosing pay range information even in locations not required and another 62% have a plan to publish this information independent of regulation.

No matter the status in your state, all employers need to be aware of this regulatory trend and begin to prepare. For those doing business where laws are already in effect, now is the time to review and modify policies and internal procedures for compliance. Multi-state companies may see a more significant impact as laws can vary between each location. In those organizations, human resources managers should pay especially close attention to job postings at each site to ensure the postings, even those made on their behalf by third parties, comply with relevant transparency regulations.

Each of the current and proposed laws is somewhat different; however, most share these components:

Salary transparency (wage scale or salary range) in external job postings
Salary transparency (wage scale or salary range) for transfers and promotions
Recordkeeping and reporting

In addition, some laws also require posting of a general description of benefits and other forms of compensation. Most regulations apply to both electronic and hard copy postings and those published by the organization and by outside companies acting on their behalf. The applicability of transparency mandates differ by employer size in some states, as do recordkeeping and reporting requirements.

Salary transparency is an element of fair pay practice and provides benefits for employers, employees and the workforce as a whole. According to research published by SHRM (Society for Human Resource Management) and Forbes, these include:

Creating operational efficiencies and reducing administrative workload by providing clear guidance for employee pay decisions
Decreasing the risk of possible discriminatory action around compensation matters
Simplifying organizational wage planning and budgeting as pay ranges are clearly defined
Promoting fairness and building greater trust among job seekers and employees
Increasing employee satisfaction with compensation and corresponding job motivation
Reducing recruiting costs and boosting candidate quality while shortening the time needed to fill open positions. It also increases interest of candidates in a position and attracts applicants who more closely match the qualifications needed.
Including market-based pay information in a job advertisement -- especially in the title ---was also found to attract more candidates and to provide a competitive edge over those that did not.

Find out what regulations are in effect in the state or local jurisdiction where your company is located and those which are being proposed. Even if there are no current salary transparency mandates in your area, begin to prepare for those which may be coming based on trends in other parts of the nation. It may be only a matter of time before there is action in your state.
One of the initial steps is to determine a company strategy about the way internal changes will be made in response to these laws. Options may include doing only the minimum necessary to comply; implement by location only when needed; or use an integrated approach across all sites. It may include changing compensation framework and adjusting pay ranges. If this is necessary, conducting a pay equity analysis in advance will identify where modifications are needed to ensure the wage equity foundation is sound before posting pay ranges.
Conduct a review of your policies and practices and identify changes to be made. It is also important to consider the organization’s administrative structure and modifications required to manage and communicate the changes. Experts advise sharing pay ranges with internal team members before posting externally.
This is also an ideal time to review other fair pay laws that apply to your organization and verify compliance or identify action to be taken.
Work with your compensation specialist or employment legal counsel to ensure your structure is compliant in the locations where you do business or to begin preparations for future laws that may be implemented in your region.

Bottomline, now is the time to look at your organization’s salary transparency and fair wage practices. Yes, it is work to make changes and to comply with the new laws. However, compliance will be straight forward to maintain over time when using the right tools and technology and will benefit both your employees and your organization.

Resources:

Liu, J (Jan 3, 2023); All the U.S. States, Cities and Counties Where Companies Have to Share Salary Ranges with Workers; CNBC

Contributing Writer (Feb 1, 2023); Four Predictions For Pay Transparency Laws In 2023; Forbes

Maurer, R. (December 12, 2022); Pay Transparency Reduces Recruiting Costs; SHRM

The end of the calendar year is an important time to schedule and complete the payroll tasks needed for accurate tax reporting -- both for your organization and your employees. The schedule for these steps stretches from 4th quarter of one calendar year into the 1st quarter of the next.

Accurate and timely year-end processing ensures compliance with governmental regulations and reduces headaches and the risk of penalties for your organization. In addition to wrapping up payroll matters for 2022, completing the work at this time of year also helps in determining compensation and benefits levels for 2023 and supporting other areas of business financial planning.

Payroll year end occurs in two phases:

Tasks completed before the final payroll of the 2022 calendar year
Those to do between the final payroll of 2022 and the first payroll of 2023

As there are a number of steps required in each phase, even experienced payroll and benefits specialists can inadvertently overlook important to do’s in these critical time periods. Some state-to-state variations exist in year-end tax processing; however, most organizations are required to complete a number of common steps during each time period. The summary below will help verify your organization is on schedule this year end. In addition, be sure to check your local and state regulations for any additional requirements in your region.

Update Information
Update employee indicative data and organizational information as needed. This includes name/address/tax ID and tax status.

Prepare for ACA Annual Reporting
Gather information for Affordable Care Act (ACA) reporting, The specific requirements are based on number of FTEs and type of company health insurance provided in your organization (self-insured or fully insured through a commercial provider).

Process Year-End W-2 Adjustments
Make year-end adjustments before processing the last payroll of the year. Unreported benefits, including bonuses, personal use of a company car and other non-cash benefits are examples of adjustments included in this category.

Identify Excess Retirement Plan Contributions
The IRS has limits on contributions to 401(k), 403(b), or SIMPLE retirement plans. Review employee contributions to identify possible tax reporting requirements.

Order Payroll Documents
Employee W-2s, an organizational W-3, 1099s for contractors and new labor compliance posters for 2023 are on this checklist.

Determine employee bonuses earned.
Calculate and withhold taxes for bonuses paid.
Based on your organization’s accounting method and legal structure, the time and methodology for deducting bonuses will vary. If you are unsure, contact your payroll or tax professional.
Notify employees about benefits to expire at the end of 2022. Roll forward or clear the annual paid-time-off bank based on organizational policy.
Resolve any specialized payroll situations, such as payroll disputes or employees with voided paychecks. These should be handled before year end.

Data Verification and Close

Finalize the annual payroll and tax numbers after the last pay period in 2022.
Review all pay periods for the year to ensure that amounts are logged accurately, including wage totals, benefit deductions and payments, and miscellaneous deductions, such as child support.
Verify that payroll tax amounts match quarterly payroll returns.
Check that year-end payroll information is recorded in the accounting system.
Provide required information to the accounting firm preparing your tax returns.

Although most changes that affect payroll go into effect in January, others take place on July 1 with the start of a new fiscal year for many state and local governments. This year is no exception with July 1 bringing new wage-and-hour-related provisions to some states and municipalities. Based on the location of your organization and structure of your workforce, you may be required to comply.

Most of the July changes impact minimum wage levels, for example, the state-wide increases in Nevada, Oregon, Connecticut and Washington DC. In other states, local minimum wage requirements also apply, such as in Nevada where the minimum wage may differ if the employee is offered health insurance. In addition, several communities in California, Illinois, Oregon, Maryland and Minnesota also made city and county-level changes.

Some provisions also affect calculation of wages for workers who receive tips and for certain types of exempt staff. Looking at those changes, the minimum wage requirements in some states now apply to workers who are exempt from overtime regulations, such as those who hold professional, administrative, executive or outside sales positions. A few mandate that these staff must earn the applicable minimum wage or more for each workweek hour. If the employee works on a commission basis, the overtime exemption in Nevada, Oregon or Washington must be a at least 1.5 times the newly-increased minimum wage while in Connecticut, it must be double. A post by Epstein Becker Green, published in the National Law Review, summarizes minimum wage changes nationwide and the organizations to which they apply.

There may be additional new regulations in your jurisdiction which affect your employees. A detailed list of other 2022 wage-and-hour-related changes, including those which went into effect earlier in the year and those projected between now and January 1, 2023, are described in this Littler Mendelson article.

If you have minimum wage, exempt or tip-compensated employees, get in touch with your compensation specialist or employment legal counsel to ensure your compensation structure is compliant in the locations where you do business.

QTS delivers customized payroll and human resources solutions for organizations across the nation, ranging in size from 2 to more than 1000 employees. Advanced technology combined with exceptional service differentiates QTS from other payroll companies which has made QTS the vendor of choice in provider-to-provider comparisons. QTS also provides HR outsourcing and consulting on wage-and-hour and related compensation and payroll issues to support in-house organizational teams

Knowledge Center News

Will your exempt employees qualify for overtime on July 1?

Impact of the April DOL ruling on overtime pay

May 10, 2024

An Exemption Change.

Does it Apply to My Organization?

The Tests.

What Your Organization Should You Do Now.

A Fresh Start

Organizational Mergers & Consolidations

Handling the complexities of payroll

June 15, 2023

Salary Transparency: Time to Take Action.

February 28, 2023

What is included in the transparency laws?

What are the penalties for non-compliance?

Who benefits from the transparency laws?

What steps are needed now?

Ready for Payroll Year End?

To do’s for wrapping up 2022

December 1, 2022

Timing is Crucial

Before Year End 2022

January 2023

A Strong Year End Delivers a Robust Start to 2023

July Wage & Hour Changes: Is Your Organization Impacted?

July 1, 2022

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