Accounting Firms Need To Review Payroll Risks

Who is eligible for overtime? It’s a serious question that CPA firms need to answer before the next tax season.

Hiring has reached record levels at accounting firms across the country and new Department of Labor minimum salary thresholds going into effect December 1, 2016, mean that employees making $913 or less per week (or about $47,476 a year) will be eligible for overtime pay. For these non-exempt employees — many of whom expect overtime hours — employers will need to consider a decrease in employee flexibility (and possibly productivity) to better track hours worked. Their other option is to bump up more salaries to the exempt threshold or allow a higher level of overtime pay.

“Potential misclassification of employees as well as upset employees who explore their rights under wage and hour laws are increasing the risks for employment liability claims,” notes Bill Thompson, CPA, President of CPA Mutual, a risk management consultant and professional liability insurance provider exclusively for CPA firms. “Already, Fair Labor Standards Act lawsuits have risen in response to federal regulation revisions, and can morph into class action suits. The company’s intent is irrelevant in these wage and hour claims.”

Some examples of actual wage and hour claims violations have included:

Employees working during non-paid lunch breaks
Using a mobile device to e-mail and talk to clients or vendors after work
After-hours socializing where business is discussed
Policies that employees must arrive at work 15 minutes prior to clock-in time
Employer failure to provide written notice and acknowledgement of wage or benefits changes in advance of the change

Aside from the costs of paying more overtime, CPA firms are likely looking into ways to manage their risks prior to the DOL deadline in December. Here are several tips from CPA Mutual and business advisory partner Enquiron with regard to overtime risk management and adequate EPLI coverage.

1. Conduct a wage and hour self-audit.

Make sure that all employees are properly classified as exempt or non-exempt. Review company policies with regard to reporting to work, recording time and remote work (especially by mobile device). This audit may also determine if the firm has adequate EPLI coverage. Proactive measures may also support managing future EPLI premiums.

2. Make sure that EPLI policies include coverage for wage and hour claims.

A 2014 study published through the American Bar Association noted inadequate EPLI coverage for wage and hour claims, including specific FSLA exclusions and strict definitions of “employee,” and “loss.” Pay careful attention to policy language with regard to FSLA-related claims, and consult with your legal counsel and insurance provider. Larger CPA firms may consider having employees sign a class action waiver, which can limit exposure to class action lawsuits.

3. Schedule conversations and provide written notice of changes to wages.

Failure to provide written notice to employees of their wage rate, pay period, pay day and a description of fringe benefits, including any changes, is among the top 10 wage and hour violations, according to the DOL. Each employee must receive the required information in writing and must sign an acknowledgment of receipt of the information. Written notification signed by the employee is required every time the employee’s pay or benefits change, and the notice should be provided in advance of any change.

4. Prepare for and manage employee complaints properly.

In addition to updating employee handbooks with regard to wage and hour recording and overtime restrictions, employers and human resources staff need to prepare for difficult conversations with employees about compliance with new overtime rules. Expect that some new policies will make employees feel “demoted” if they have to clock in or are excluded from after-hours business.

Instead of demotion or loss of flexibility, it may be possible to communicate a stronger boundary between work and “not work.” Since the DOL classifies any time spent answering work email and phone calls after hours as compensable time, employees will have permission to set boundaries where none existed before. Work/life balance may actually improve — which supports a more attractive workplace.

“Prevention of claims is the best approach,” Thompson said. “We are always looking at ways for employers to get ahead of possible risks while also retaining great employees.”

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Bill Thompson, CPA, RPLU, helps CPAs navigate the minefield of professional liability issues with practical risk management. Bill is also responsible for underwriting, reinsurance negotiations and placement, coverage and policy issues as President of CPA Mutual. cpamutual.com. CPA Mutual is aligned with Enquiron, a strategic business advisor on HR, employment law and health care. Last year, utilization of Enquiron advisory services by CPA Mutual policyholders was 10 times the industry standard — resulting in reduced risk.