Overtime, workers’ compensation changes catching employers off-guard

Small businesses can be caught off-guard by recent changes in workers’ compensation and overtime rules.

“With limited personnel resources, it’s difficult for smaller companies to keep up,” says Jim McElwain, Regional Sales Manager at Paychex. “Unfortunately, ignorance is not an excuse. Companies that don’t comply will be hit with significant fines.”

Smart Business spoke with McElwain about recent law changes and how they could affect smaller businesses.

How have the rules changed in Ohio for workers’ compensation filing and reporting? 

For the past 25 years, Ohio companies paid their workers’ compensation insurance in arrears. They put down a deposit with the state, paid their employees for six months, calculated their wages and multiplied it by their workers’ compensation percentage. Then the state sent a bill for what was owed. It was due every July and January and required a simple calculation.

The state has revamped the workers’ compensation payment system. Companies now pay in anticipation of what they expect wages will be, then they true-up every six months. Companies report their workers’ compensation wages for the past six months, and the state uses that to make a projection of what companies will owe for the upcoming six-month period, which is broken into bi-monthly payments. Then the state asks for the company’s actual wages. If actual wages are higher than the six-month projection, the company owes a true-up payment. If wages were less than projected, a refund is issued. That’s made the process more complex, which might open the door to potential penalties until companies can adapt.

What’s changed with the Department of Labor rules regarding overtime?

The Department of Labor (DOL) has revised the overtime rules to now say that any salaried employee making less than $47,000 annually must be paid overtime. That amount had been $23,000.

This is going to put smaller businesses in a tough position. Managers, for instance, who would often start shifts early, pick up work on the weekends, are now entitled to overtime. So employers must decide whether to keep them under 40 hours or pay them overtime.

It also means employers now must track the hours of many of their salaried employees. If the DOL asks a business for its payroll records, they must be produced within three days.

The new rule goes into effect Dec 1, and it’s likely that there are many small businesses that are not aware of the change.

What are smaller businesses getting wrong when it comes to classifying employees?

Many smaller businesses aren’t clear on the overtime rules. They think that if they just classify an employee as exempt or as a contractor then they don’t need to pay overtime. But there are job categories with standards employers must adhere to.

Misclassifying employees can result in major fines. If it receives a complaint, the DOL will search the employer’s records three years back and fine the employer for any unpaid overtime throughout that period. Not only that, but by misclassifying employees as sub contractors, the employer isn’t withholding federal, state and local taxes, as well as social security and Medicare, and they’re not paying into unemployment and workers compensation. If that’s discovered it can mean hundreds of thousands of dollars in fines.

What should be understood about Affordable Care Act reporting for FTEs?

Employers are struggling to understand what full-time equivalent (FTE) means. To stay under the 50-employee threshold, which exempts them from having to provide employees with affordable health insurance, some employers are considering moving people from full- to part-time while maintaining the same staff levels. Under the Affordable Care Act, the employee count is determined by a complex calculation. Based on total hours, employers that have the equivalent of 50 people working full time must provide health insurance.

Laws change regularly. Employers that aren’t aware of these changes could end up with significant fines. If you’re struggling to keep up, ask for help. There are service providers that keep an eye on legislative changes for you.

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