By Erin Shubel, EAA Chief of Staff with insights & contributions from Nathan Graaff, CEO of Artisan Roofing

By NJ Joseph, EAA's Fractional Controller

As the warm rays of summer fade and a crisp breeze ushers in October, it’s clear that fall favorites are making their grand entrance. From pumpkin-spiced everything to creative costumes and haunted houses, the magic of spooky season is undeniably in the air. But amidst the delightful chaos of candy corn and ghostly décor lies another important tradition: the final fiscal quarter. While everyone else is busy with tricks and treats, businesses are sharpening their pencils and preparing for crucial year-end deadlines and 2025 budget plans. This year, don’t forget to factor in the new employment laws that are adding a little extra intrigue to the mix!
 
As many of you know, the U.S. Department of Labor rolled out some big changes starting July 1, 2024 that affect exempt and non-exempt employees. Just to review, an exempt employee is someone who is not subject to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. Exempt employees are usually paid a salary, and their pay is not based on the number of hours they work. The new law raised the annual salary threshold to $43,888 for salaried employees to be exempt from overtime pay, but the real game-changer is just around the corner: beginning January 1, 2025, that threshold will jump to $58,656. Beginning July 1, 2027, these thresholds will be re-evaluated every three years to adjust for inflation.
 
Currently the state of Texas has challenged this law in federal court, but don't hold your breath for any immediate changes before the January 2025 deadline. In the meantime, it’s smart to get ahead of the curve and make sure your company is in compliance. As you prepare your 2025 budget, here are five important things to consider for managing wage-related expenses under the new rules:
​
1. Ensure Exempt Employees Meet the Duties Requirements
To be considered exempt from overtime, employees must satisfy three criteria:

• Salary Basis: To qualify as exempt from overtime, employees must be paid on a salary basis, meaning their pay cannot fluctuate based on the quality or quantity of work performed.
• Minimum Pay Amount: The salary threshold for exempt employees is currently set at $844 per week ($43,888 annually), and as of January 1, 2025, the minimum will increase to $1,128 per week ($58,656 annually).
• Duties Test: To be classified as exempt, employees must primarily perform duties associated with executive, administrative, or professional roles. This remains a critical factor in determining exempt status, alongside meeting the salary requirements.

 
2. Compliance for non-exempt and highly compensated employees
Non-exempt employees are entitled to 1.5 times their regular rate for any hours worked over 40 in a workweek (overtime) under the FLSA. Another change that took place July 1, 2024 is the threshold for the highly compensated employee (HCE) exemption, which increased to $132,964. On January 1, 2025, this rate will increase again to $151,164. This too will be adjusted every three years, beginning in 2027, to account for inflation.
 
3. Assess Current Employee Salaries
Now’s the time to evaluate whether reclassifying employees to non-exempt status makes sense for your organization.
 
4. Provide Advance Notice of Salary Changes
Be proactive! Notify employees about any changes to their compensation and any new responsibilities, such as timekeeping and meal and rest breaks.

5. Stay Updated on Legal Changes Currently, only Texas is affected by the ruling blocking the application of this new Department of Labor law. However, it’s wise to stay vigilant for potential changes in other states!
 
At Elevated Advisory & Accounting, we understand the challenges business owners face while juggling operations and employee needs. Our dedicated advisory team is here to support your success with the insights and resources you need to make informed decisions confidently. Contact us today at [email protected] to discover how we can help you thrive in this ever-evolving financial landscape!

by your trusted Business Advisor, Nicky Franks

In our final installment, we delve into a crucial topic that every business must navigate with care: the risks and consequences of misclassifying workers. Proper classification isn't just about compliance—it's about safeguarding your business from severe penalties and legal entanglements.

Misclassification carries substantial risks that can profoundly impact your business:

• Financial Penalties: Misclassifying employees as contractors can lead to substantial fines from the IRS and state agencies, including back taxes, interest, and penalties for non-payment of taxes.
• Legal Repercussions: It opens the door to lawsuits from workers seeking unpaid wages, benefits, and overtime. These legal battles can drain resources and tarnish your company's reputation.
• Unpaid Benefits: Employees are entitled to benefits such as health insurance and retirement plans. Misclassified workers may retroactively claim these benefits, creating significant financial liabilities.
• State-Specific Penalties: States like Montana impose additional penalties for misclassification, further burdening businesses with fines and additional tax obligations.
• Worker Rights: Misclassified workers may miss out on crucial protections like unemployment insurance and workers' compensation, exposing your business to claims and liabilities.

Example: Consider a construction company that misclassifies its full-time workers as independent contractors to avoid providing benefits. The workers file a lawsuit, resulting in a costly court decision against the company, including back taxes, fines, and legal fees totaling hundreds of thousands of dollars.

Implication: Proactively ensuring correct classification from the outset can mitigate the risk of expensive legal battles and financial penalties. Regular audits and consultations with legal experts are invaluable in maintaining compliance.

The stakes of misclassification are high, impacting both the financial stability and reputation of your business. By diligently adhering to classification guidelines and prioritizing fair treatment of workers, businesses can protect themselves from penalties and maintain trust and credibility in the marketplace. 


Series Summary:
Throughout this series, we've explored the critical nuances of worker classification, from financial control and the nature of relationships to the risks of misclassification. Each aspect underscores the importance of compliance and strategic decision-making in fostering a resilient business environment.

Thanks for listening and stay tuned for more Elevated Insights as we continue to unravel essential strategies and insights to empower your business success. Don't miss out on our upcoming content—it's designed to elevate your understanding and optimize your business practices!

We'll chat soon! 

Best, 
​Nicky

Welcome back! In our last discussion, we explored the crucial element of Financial Control in distinguishing between employees and independent contractors. Today, we delve deeper into the Relationship of the Parties—another cornerstone in the classification puzzle.

This criterion scrutinizes the dynamics and formal agreements between the worker and the company. Here’s what matters to both the IRS and Montana Department of Labor & Industry:

• Written Contracts: Is there a clear contract outlining the nature of the relationship? Clearly defining whether the worker is a contractor or employee is crucial.
• Benefits: Does the worker receive benefits such as insurance, pension plans, or paid time off? Typically, employees enjoy these perks, while contractors do not.
• Permanency: Is the relationship ongoing or tied to specific projects? Long-term arrangements lean towards employee status, whereas project-based work suggests contractor status.
• Integral Services: Does the worker perform tasks essential to the company’s core operations? Employees often handle key functions, whereas contractors typically offer specialized services.
• ICEC in Montana: Holding an Independent Contractor Exemption Certificate (ICEC) in Montana signifies contractor status.

Example: Imagine a marketing consultant hired for a six-month project without receiving company benefits—they likely fall under contractor classification. Conversely, an in-house marketing specialist with benefits and no defined end date likely qualifies as an employee.

Implication: Clarity in contracts and understanding the nature of work relationships is crucial for compliance. Misclassification can trigger audits and penalties.

Understanding the nuanced dynamics of the worker-company relationship is pivotal in classification. By establishing clear agreements and grasping the essence of work dynamics, businesses ensure alignment with IRS and Montana state guidelines.

Stay tuned as we continue to uncover more insights into optimizing your business practices! For the finale, we will cover the risks associated with misclassification. Until then!

Warm regards,
​Nicky

Greetings from the desk of Nicky Franks, where we dive deeper into the critical realm of Financial Control—the linchpin in distinguishing between employees and independent contractors.

Financial Control scrutinizes the degree of financial autonomy a worker enjoys from their employer. Both the IRS and Montana Department of Labor & Industry scrutinize several vital aspects

Key elements include:

• Significant Investment: Does the worker invest in their equipment or materials? Independent contractors typically use their resources, while employees often rely on company-provided tools.
• Expenses: Are business and travel expenses reimbursed? Contractors generally cover their expenses, whereas employees are typically reimbursed.
• Opportunity for Profit or Loss: Can the worker experience financial gain or loss based on their managerial skills? Contractors usually have this potential, unlike employees who receive fixed salaries.
• Services Available to the Market: Does the worker offer their services to the public? Contractors commonly advertise and serve multiple clients.

Example: Consider a software developer who invests in their computer and software licenses, serving various clients—a clear indicator of an independent contractor. Conversely, a developer using company-provided equipment and receiving a steady paycheck leans towards employee status.

Implication: Correctly assessing these financial control factors is vital for businesses to avoid misclassification, steering clear of financial penalties and legal entanglements.

Understanding and evaluating financial independence is pivotal in navigating the complexities of worker classification. By grasping these nuances of financial control, businesses empower themselves to make informed decisions, ensuring compliance with regulatory standards. Stay tuned as we continue to unravel more insights in our ongoing exploration. Until next time!

Warm regards,
Nicky