DoL

New Overtime Regulations Take Effect in December

On December 1, 2016, about 4.2 million workers who were previously classified as "exempt" could become eligible for overtime pay due to modifications to the Fair Labor Standards Act (FLSA), and many small businesses have been scrambling to comply with the new rules.

Following is a brief summary of why the changes were enacted, and what they may mean for both workers and employers.

In May 2016, President Obama and Secretary of Labor Thomas Perez announced major changes to the FLSA that are intended to improve the situations of lower-salaried workers who typically work more than 40 hours per week, such as restaurant and retail managers. Because of their long hours and relatively low salaries, such employees can potentially earn less, on an hourly basis, than the associates they manage. The Department of Labor (DOL) has said, "This long-awaited update will result in a meaningful boost to many workers' wallets." However, the new rules may complicate matters for small businesses struggling to maintain appropriate staffing levels while trying to contain labor costs.

Specifically, the new rules increase the minimum salary that an executive, administrative, and professional employee must earn to be considered "exempt" from overtime pay. On December 1, the annual salary threshold rises to $47,476 ($913 per week), more than double the previous amount of $23,660 ($455 per week) established in 2004. This means that employers are considering several options:

  • Reclassify all employees making less than $47,476 per year as non-exempt, and therefore eligible to receive time and a half overtime pay when their hours exceed 40 per week.
  • Ensure that the salary for all executive, administrative, and professional employees is at least $47,476 per year.
  • Ensure that all executive, administrative, and professional employees who make less than $47,476 annually work no more than 40 hours per week.

One caveat is that the rule also allows employers to use nondiscretionary bonuses and incentive compensation (including commissions) to satisfy up to 10% of the new threshold salary requirement, as long as those payments are made on at least a quarterly basis. Also note that the new salary threshold will be adjusted every three years, beginning in 2020, based on wage growth, so affected employee salaries will need to keep pace with these adjustments.

While the rules are intended to improve employee situations by helping them secure either higher paychecks or fewer hours at work — and may indeed achieve that goal for many American workers — the benefits may barely be noticed by employees whose salaries need to rise by small amounts to meet the new threshold. Employers, by contrast, are weighing the requirements of having to track salaried employee hours and potentially make overtime payments against the costs of lifting salaries to meet the threshold.

For more specifics and information, please visit the Department of Labor website.

The Department of Labor's New Fiduciary Rule

The Department of Labor revealed its long-awaited new fiduciary rule for investment advisors Wednesday morning.

The rule is designed to guarantee that investment advisors are putting their clients’ interest  first in regards to both fees and investment choices – that is to say that they are acting in a fiduciary capacity. Liz Davidson, the author of What Your Financial Advisor Isn’t Telling You, gives some insight into the details of this new rule in an interview with USA Today.

What does the rule mean?

Liz Davidson: Under the Department of Labor’s fiduciary rule, financial advisers providing investment advice for retirement accounts (including employer-sponsored retirement accounts, Individual Retirement Accounts and even many Health Savings Accounts) will now be subject to a fiduciary standard, which requires them to put the client’s interest first.

A fiduciary standard…requires the adviser and the company to act with the care, skill, prudence and diligence that a prudent person would exercise based on the current circumstances.  Both the firm and the adviser must avoid misleading statements about fees and avoid conflicts of interest.  This is great news for consumers. The end result is that the new rule will now align the interests of both the investor and the adviser and put them on equal footing when it comes to all the information they both need to make the best decisions.

How do I know if my investment adviser is a fiduciary?

LD: Ask to see a fiduciary agreement in writing.  If your adviser is compensated even partly from commissions from investments they sell you, they’re probably not acting as a fiduciary.  The DOL offers this guide for consumers on how to tell if your adviser is a fiduciary.  Some examples of personal financial advisers that are already acting as a fiduciary whose status can be verified online are Registered Investment Advisors (RIA) and “Fee-Only” professionals who are members of NAPFA (the National Association of Personal Financial Advisors).  Some retirement plan advisers who offer employee benefits already act as fiduciaries, as do CFP professionals when offering financial planning advice.  However, many CFPs work for brokerage firms who follow the looser “suitability” standard when it comes to investment advice.

What will be the effect on fees?

LD: The expectation is that advisers required to act as fiduciaries will recommend lower-fee investments to their clients. The DOL has estimated that this will save investors up to $40 billion in fees over the next 10 years.  The practical implication of the fiduciary standard is that when choosing between two otherwise very similar investments, a fiduciary would choose the one with the lower costs. This is very helpful as the structure of much of the financial services industry is full of inherent conflicts of interest that don’t always favor consumers.

How will it affect the average investor?

LD: The fiduciary rule will have a positive effect on the average investor because it now places that investor and the adviser on the same side of the table.  Investors should see their costs go down over time and their trust in advisers go up as they experience more transparency in fee and compensation disclosure, and know that the adviser is held to a recognized legal standard to uphold the investor’s interest over their own.  Investors who don’t meet the minimum account standards for traditional advisers still have many great, low-cost options. Those investors may want to consider working with a financial adviser that charges a flat hourly, monthly, or annual fee instead of an asset-based fee... Investors who have unbiased financial wellness programs as an employee benefit can also get free financial education and guidance to help them make their own investment decisions.

If you have any further questions about the Department of Labor's new rule, don't hesitate to contact us.

**This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. Prepared by Broadridge Communication Solutions Inc. Copyright 2015