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The Certified Payroll Professional Corner: Overtime

Christopher Wood, CPP  

Christopher Wood, CPP  

In this edition, we're getting into overtime by starting with two happenings on the subject and then a CPP quiz question. We'll also go over a previous quiz question on the topic of taxable and nontaxable fringe benefits.

In our last edition of the Certified Payroll Professional (CPP) Corner, we talked about taxable and nontaxble fringe benefits.

Payroll conference guidance on fringe benefits. During one of his workshops at the American Payroll Association’s (APA) 40th annual Congress in Las Vegas, Fred Basehore, Senior Director of Payroll Tax and Compliance at Guidehouse, noted that any fringe benefit an employer provides to an employee is taxable and must be included in the recipient’s pay unless the law specifically excludes it.

IRS publication on benefits. IRS Publication 15-B is a good resource for information on the taxability of fringe benefits. It covers many fringe benefits, such as: employee discounts, group-term life insurance coverage, health savings accounts, transportation benefits, adoption assistance, and employer provided cell phones, among other benefits.

Last edition’s CPP quiz answer. In the last edition, we presented a list of six fringe benefits and asked which of the following were considered nontaxable fringe benefits (multiple options could apply? The options were as follows: (a) qualified transportation fringe benefits, (b) on premises athletic facilities, (c) value of personal use of an employer-provided vehicle, (d) group-term life insurance provided to employees up to $50,000, (e) group-term life insurance provided to employees over $50,000, and (f) retirement planning services.

Of that list of six options, the following three were nontaxable fringe benefits: (1) qualified transportation fringe benefits, (2) group-term life insurance provided to employees up to $50,000, and (3) retirement planning services.

Payroll Guide ¶3540 discusses fringe benefits. Payroll Guide ¶3585 discusses qualified transportation fringe benefits. Payroll Guide ¶3425 discusses group term life insurance. Payroll Guide ¶3540 also discusses qualified retirement planning services, which are covered under Code Sec. 132(a)(7).

Supreme overtime ruling. According to its website, the U.S. Supreme Court hears somewhere between 100 to 150 of the more than 7,000 lawsuits it is asked to rule on each year. This year, the highest court in the land has agreed to decide whether a supervisor of offshore oil rig workers is entitled to overtime pay under federal law even though he earns more than $200,000 a year.

Listening sessions for overtime salary basis. Also, the U.S. Department of Labor (DOL) announced that it is offering a series of listening sessions through June 3, 2022 regarding possible revisions to overtime provisions of the Fair Labor Standards Act (FLSA) for the appropriate salary level above which the exemptions for bona fide executive, administrative, and professional employees may apply.

Overtime pay. The FLSA establishes, among other things, overtime pay. Non-exempt employees must be paid a rate of time and one-half the regular rate of pay for all hours worked over 40 in a workweek. However, 29 USC 213(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees.

Salary basis.  To qualify for exemption, employees must generally meet certain tests, including a salary basis requirement. In 1938, the year the FLSA took effect, the salary basis was $1,560.00 per year for only the administrative and executive exemption. There was no salary set for the professional exemption yet. Through the years, the salary basis has increased (and the professional exemption was added).

In 2016, the salary basis was to increase for the first time since 2004. However, a federal judge temporarily blocked the DOL’s final rule. When the presidential administration changed, the DOL released a final rule in 2019 a final rule that increased the salary basis to the current amount.

Overtime investigations. It is important for employers, payroll departments, and payroll professionals to know and understand the overtime provisions of the FLSA. In 2021, the DOL’s Wage and Hour Division (WHD) recovered more than $138 million in overtime back wages for more than 145,000 workers. In its investigations, the WHD found that overtime back wages represented 80% of all back wages due.

CPP quiz question. Not knowing and understanding the FLSA overtime rules can result in a costly WHD investigation. This is one of the reasons why overtime is covered on the CPP exam.

CPP exam question. What is the current weekly salary basis for the FLSA exemption from overtime pay?

  1. $584 per week
  2. $684 per week
  3. $784 per week
  4. $884 per week

Good luck! We’ll have the answer and more information in the next edition’s CPP exam question.

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