New Overtime Rules May Affect Benefits Plans

New Overtime Rules May Affect Benefits Plans
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The recently finalized FLSA regulationshighlight the potential impact on salaries and wages for many organizations. With a December 1st date looming in the near distance, many companies need to determine whether they will be re-classifying employees, upping wages to the new minimum salary threshold or greater, cutting overtime hours, or a combination of approaches. In addition to the focus on bottom-line labor cost dollars, a further consideration for companies is any impact on benefits plans, such as eligibility for certain benefits, and changes in benefits levels, such as for retirement and life insurance.

Although not as common of a practice today, some organizations may have several employment classifications, such as hourly staff, non-exempt salaried, salaried management, and executives. The laws surrounding most employee benefits plans allow various classifications to be deemed non-discriminatory as long as all those individuals within the same classification are treated the same. Therefore, some companies today may offer only certain benefits or benefits levels to certain groups of employees. For example, the executives might only receive certain perquisites, or the salaried staff might have a life insurance benefit, based on a certain salary multiplier, whereas, perhaps, the hourly staff receives a flat amount, or a lower multiplier. Many group term life insurance plans today are a multiple of salary so for companies that pay the premiums for these plans (most do) will add to an increased expense for the company, depending on the company's adjustment to wages. In addition, the increased benefit for employees may result in additional imputed income for the individual.

There may, also, be differences in the eligibility or level of disability benefits among various classifications, or differences in paid time off accruals. Perhaps an organization offers a different amount of employer health savings contributions based on classification?

From a retirement perspective, the formula for retirement plan contributions, whether for the remaining traditional defined benefits plans out there in the world, or for the more prevalent defined contributions plans, like 401(k), a change in base salaries and wages will likely result in an increase in employer matching contributions. Many plans include overtime in their plan definition of compensation. The change could also affect plans that exclude overtime pay from the plan's definition of compensation if the new overtime pay causes the definition to become discriminatory in favor of highly compensated employees (HCEs).

At the end of the day, the company's approach to the new overtime regulations may, indeed, impact both the availability and the level of various employee benefits, depending on the organization's final approach to compliance with the new regulations. Just another issue for employers to have to address in a very short period of time.

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