In 2020 companies may find themselves required to pay overtime to employees that they previously were not required to. During a time with record low unemployment, employee retention should be at the forefront of every manager and business owner. Just because an employer is not required to pay overtime, does not mean that they shouldn’t.
The introduction of a new decade may surprise many business owners, especially how 2020 will impact their payroll expenses. More than half of the states in the US have increases to their minimum wage which went into effect as of January 1st, 2020. As more states progress toward an unofficial targeted $15.00 per hour minimum wage, some states are taking larger strides toward obtain that goal sooner than others.
Top 5 States with largest increases by percentage:
- New Mexico 16.7%
- Illinois 10.8%
- Washington 11.1%
- New Jersey 9.1%
- Missouri 9.0%
While the increased minimum wage may not seem like much of a change by itself, when combined with the new Fair Labor Standards Act (FLSA) overtime exemption ruling also taking effect January 1, some business owners may be surprised to learn previously exempt employees are now required to be paid overtime. These are exactly the types of changes that can create new opportunities for accountants to expand beyond traditional accounting services by advising their clients on how to properly navigate these changes. With the right tools at our disposal, it becomes easy to understand these changes and provide billable services that can benefit your clients in a big way.
Federal and State Compliance Notifications:
Staying apprised of all the recent changes impacting payroll can require a lot of unbillable time. This is where tools like ADP’s Accountant ConnectSM platform can become an accountant’s secret weapon. Originally introduced as a resource to make it easy to access all your ADP client payroll data & reports in one place, ADP® continues to add powerful new tools to keep you abreast of these changes and help prepare you for the new year. The Resource tab, among many other tax resources, provides easy access to state-by-state minimum wage requirements as well as state tax rates (1). Compliance notifications located on the Accountant Connect dashboard (3) provide access to other vital information we need to educate our clients. The recent change to the annual Wage threshold provides a perfect example of how important access to this information truly is.
On September 24th, 2019, the department of labor issued a final ruling on the salary threshold for “white-collar” exemptions. Under this new ruling, salaried employees must earn at $35,568 per year to be considered exempt from overtime in comparison to the 15-year-old standard of $23,660 per year. When you evaluate what that looks like as an hourly wage, the dramatic increase becomes very apparent.
Payroll Calculators:
The Accountant Connect portal also contains 12 different payroll calculators including their FLSA Overtime Calculator and Salary Paycheck Calculator (2). These become instrumental when
Compensation Benchmarking:
This is by far my favorite tool to use with our clients when evaluating the cost of overtime in comparison to hiring a new employee. The Compensation Benchmarking tool in Accountant Connect allows us to research what the local market wages are for a given industry and position including the average amount of overtime expected for that role.
With more than 1.2 million employees expected to be impacted by the new overtime exemption policy, compensation benchmark data can help business owners determine if it would be less expensive to hire another employee or to pay the current staff overtime wages.
For example, if a company employed nine employees that all currently are paid $17.09, they would still fall below the new overtime exemption wage limit. If those same employees also met all other requirements to be nonexempt, the business owner could find themselves paying overtime for the first time.
The question becomes, at what point would it make more sense financially for the business owner to hire another employee instead of paying overtime to his current team. In this very basic, wages only scenario, if all nine employees were worked more than three hours of overtime in a week, it would be more cost effective to hire a new employee instead. With this knowledge and the Compensation Benchmarking tool, a business owner can make an educated decision on how to mitigate the impact these new changes will have in 2020.
As the accounting industry continues its evolution to the cloud, so will the responsibilities of the cloud accountant. Technology will continue to expand our access to data, requiring accountants to shift their focus from the role as the processor into the role of an advisor. ADP recognizes that our ability to quickly collect and analyze data will become a competitive advantage and have dedicated resources to helping their accounting partners succeed. Accountant Connect allows users to easily invite new and existing clients to connect through a unified dashboard, helping to streamline your payroll workflow. The best part ADP’s Accountant Connect is completely free to use and easy to setup. If you are interested to learn more you can register at adp.com/accountantconnect to get started.