Updates – DOL Overtime Ruling & ACA

What You Need to Know About the DOL’s Final Overtime Rule

The Department of Labor (DOL) issued the final overtime rules on September 24, concluding a process that began back in March when the DOL released the proposed rules (see DOL Issues Long-Awaited Proposed Overtime Rules, 3/11/2019) [DOL News Release No. 19-1715-NAT, 9/24/19].

Background. Currently, to qualify for the overtime exemption under the Fair Labor Standards Act (FLSA), an employee must be: (1) “employed in a bona fide executive, administrative, or professional (EAP) capacity,” (2) salaried; (3) paid more than the standard salary level threshold; and (4) satisfy a duties test (see Payroll Guide ¶18,075).

After a federal district court judge blocked a 2016 Obama-era DOL final rule that increased the salary level threshold from $455 per week to $913 per week, the DOL decided to reevaluate the rules and conducted a number of public listening sessions. The proposed rules received over 116,000 comments.

Final rules highlights. The final rule takes effect Jan. 1, 2020.

  • The standard salary level test threshold for an EAP employee increases from $455 per week to $684 per week ($35,568 annually). This is a slight increase from the previously projected figure of $679 per week ($35,308 annually).
  • The highly compensated employee (HCE) total annual compensation level increases from $100,000 to $107,432 for employees that meet the EAP capacity. This is a significant decrease from the initially proposed figure of $147,414. The DOL has set the HCE limit based on the 80th percentile of full-time salaried workers nationally. The proposed rules had based the figure on the 90th percentile.
  • Nondiscretionary bonuses and incentive payments (including commissions) may satisfy up to 10% of the standard salary level test if the bonuses and payments are paid at least annually. For 2020, the 10% maximum is $3,556.80 ($35,568 per year x 10%) and to qualify for EAP exemption, the employee must meet 90% of the salary level, $616 per week. Payments may include nondiscretionary incentive bonuses tried to productivity and profitability. Employers are permitted to make a catch-up payment one payroll period after the 52-week period if the employee does not receive enough in nondiscretionary bonuses and incentive payments to remain exempt. If a catch-up payment is not made, the employee is entitled to overtime pay for overtime hours worked in the prior 52-week period.

The final rules also adjust the following:

Computer professionals. Computer professionals must earn at least $684 per week ($35,568 per year) or at least $27.63 per hour. 10% of the salary level ($68 per week) may be satisfied with nondiscretionary bonuses or incentive payments.

Special salary tests for U.S. territories. The DOL did not increase the salary level threshold for Puerto Rico, the U.S. Virgin Islands, Guam and the Commonwealth of the Northern Mariana Islands and it will remain $455 per week. The salary level threshold is $380 per week for American Samoa, based on 84% of the special salary level threshold since it has a lower minimum wage than the other U.S. territories.

Special salary test for the motion picture industry. Under the proposed rules, the motion picture industry is permitted to exempt employees who are paid $1,043 per week (currently, $695 per week) so long as they meet the duties test for the exemption.

Future updates to the earnings thresholds. Originally, the DOL proposed to update the standard salary level and the HCE total compensation threshold every four years through a notice of public rulemaking (NPRM) followed by notice-and-comment rulemaking. The DOL agreed with commenters that updates should be based on economic conditions, rather than fixed timelines.” The DOL reaffirmed its commitment in the final rule to update EAP exemptions “from time to time” as instructed by Congress.

The DOL estimates that 1.2 million additional workers will be entitled to minimum wage and overtime pay as a result of the increased standard salary level. Also, an additional 101,800 workers are estimated to be entitled to overtime with the increase of the annual HCE threshold.

The DOL has updated its website with a Fact SheetFrequently Asked Questions, and Small Entity Compliance Guide.



IRS Issues Affordable Care Act Information Return Electronic Filing Publication

The IRS has updated Publication 5164 (Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR)) and Publication 5258 (Affordable Care Act (ACA) Information Returns (AIR) Submission Composition and Reference Guide). The publications are to be used in the 2020 processing year.

Background. Code Sec. 6055 requires certain health insurance issuers, sponsors of a self-insured health plan, government agencies that administer government-sponsored health insurance programs, and other entities that provide minimum essential health insurance coverage to employees to file Form 1094-B, Transmittal of Health Coverage Information Returns, and Form 1095-B, Health Coverage.

Code Sec. 6056 requires applicable large employers (ALEs), generally, employers with at least 50 full-time employees, to report to the IRS on Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and 1095-C, Employer-Provided Health Insurance Offer and Coverage, offers of health coverage to, and enrollment in health coverage by their full-time employees (i.e., an employee who is employed on average for at least 30 hours of service per week).

The transmittal Forms 1094-B and Forms 1094-C provide information about the issuer of the ACA information returns and the Forms 1095-B and 1095-C provide information about the covered individuals.

Employers required to file 250 or more information returns must file the returns electronically. Electronic filing is done on the IRS system called the “Affordable Care Act Information Return” (AIR) program.

All filing requirements apply individually to each reporting entity as defined by its separate tax identification number (TIN). For example, if a corporation with several branches or locations uses the same EIN, the corporation must aggregate the total volume of returns to be submitted for that EIN and apply the filing requirements to each type of return accordingly.

IRS Publication 5164. The publication contains general and program specific testing information for use with the ACA Assurance Testing System (AATS). AATS refers to both the process and the system used to test software and electronic transmissions prior to accepting software developers, transmitters, and issuers into the AIR system. Software developers are required annually to pass AATS submissions and test scenarios for the forms that they will support. Transmitters and issuers are required to pass communication tests for the forms they will file. Publication 5164 covers all of the forms noted above. AATS testing typically begins in early November for first-time software developers and transmitters.

Software developers need a new Software ID for each tax year and each ACA information return type that they support. The software information must be updated yearly on the “ACA Application for TCC” available “Affordable Care Act (ACA) Services” webpage.

IRS Publication 5258. Publication 5258 provides technical information to issuers, transmitters, and software developers so that they are able to compose and submit valid submissions of Forms 1094/1095-B and Forms 1094/1095-C. AIR has two transmission methods: an Application-to-Application (A2A) channel and a Web Browser-based User Interface (UI) channel.

The publication includes the following sections: (1) Composing IRS ACA Information Returns Transmissions, (2) Transmitting IRS ACA Form Data Files and Retrieving Acknowledgment via the ISS-UI Channel or ISS-A2A Channel, (3) Identifying Transmissions and Records, and (4) Data Mapping for ISS-UI Services/ISS-A2A Web Services.