On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.

In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. Consistent with the President's goal of ensuring workers are paid a fair day's pay for a hard day's work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA's intended overtime protections are fully implemented.

The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Although the Office of Management and Budget (OMB) has reviewed and approved the Final Rule, the document has not yet been published in the Federal Register. The Final Rule that appears in the Federal Register may contain minor formatting differences in accordance with Office of the Federal Register publication requirements. The OMB-approved version is being provided as a convenience to the public and this website will be updated with the Federal Register’s published version when it becomes available.

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IRS Notice 2016-4 extends the due dates, both furnishing to individuals and filing with the IRS, for the 2015 ACA information reporting requirements that apply to self-insuring employers (and other providers of minimum essential coverage) and applicable large employers under sections 6055 and 6056 of the Internal Revenue Code.

2015 Deadline Extensions
Specifically, the notice extends the due date:

  • For furnishing to individuals the 2015 Forms 1095-B and 1095-C, from February 1, 2016 to March 31, 2016, and
  • For filing with the IRS the 2015 Forms 1094-B, 1095-B, 1094-C, and 1095-C, from February 29, 2016 to May 31, 2016 (if not filing electronically), and from March 31, 2016 to June 30, 2016 (if filing electronically).
As a reminder, Forms 1094-B and 1095-B will be used by self-insuring employers that are not considered applicable large employers, and other parties that provide minimum essential health coverage, to report information on this coverage to the IRS and to covered individuals. Applicable large employers—generally those with 50 or more full-time employees, including full-time equivalents or FTEs—will use Forms 1094-C and 1095-C to report information to the IRS and to their employees about their compliance with "pay or play" and the health care coverage they have offered.

Note: Employers subject to both reporting provisions (generally self-insured employers with 50 or more full-time employees, including FTEs) will satisfy their reporting obligations using Forms 1094-C and 1095-C. Form 1095-C includes separate sections for reporting under each provision.

Extensions Apply for 2015 Calendar Year Only
The extensions for the ACA information reporting requirements apply for calendar year 2015 only and have no effect on the requirements for other years or on the effective dates or application of the ACA "pay or play" provisions. In view of these extensions, the IRS rules regarding automatic and permissive extensions of time for filing information returns and permissive extensions of time for furnishing statements will not apply to the extended due dates. Employers or other coverage providers that do not comply with these extended due dates will be subject to penalties.
The Internal Revenue Service has issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

2016 Standard Mileage Rates
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

  • 54 cents per mile for business miles driven (down from 57.5 cents for 2015);
  • 19 cents per mile driven for medical or moving purposes (down from 23 cents for 2015); and
  • 14 cents per mile driven in service of charitable organizations (unchanged from 2015).
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. The charitable rate is based on statute. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Limitations on Use of Standard Mileage Rates
A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation (including the Section 179 expense deduction) on that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.
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Federal Unemployment Taxes (FUTA) Are Markedly Higher in Three States and the U.S. Virgin Islands

Employers in three states (California, Connecticut, and Ohio) and the U.S. Virgin Islands will pay significantly higher Federal Unemployment Act (FUTA) taxes in January 2016, due to unpaid federal loans to those affected states. This increase will be based on FUTA taxable wages paid in the affected jurisdictions during 2015.


Employers pay federal and state unemployment insurance (SUI) taxes on wages paid to their employees. The FUTA tax rate is normally 0.6% of wages paid up to a limit of $7,000 per employee, or $42 per employee per year. The full FUTA tax rate is 6.0%, but employers receive an offsetting credit of 5.4% for payment of SUI taxes. This makes the effective FUTA tax rate 0.6 %. However, when SUI funds are depleted, states draw from a designated federal loan account. If such loans are not repaid within two years, part of the 5.4% FUTA tax credit is reduced. This increases the effective FUTA tax rate in the affected states.

When this credit reduction applies, the FUTA tax typically increases by 0.3%, or $21 per employee. This increase is payable in January of the following calendar year with the Internal Revenue Service (IRS) FUTA tax return, Form 940. This credit is further reduced annually by 0.3% until loans are repaid.  In addition, jurisdictions that have had outstanding FUTA debt for five years are potentially subject to a special Benefit Cost Rate (BCR) Add-on tax. This could increase the FUTA tax by more than the typical 0.3% per year.

The U.S. Department of Labor (DOL) has identified the states and U.S. jurisdiction that will be subject to the FUTA BCR Add-on and/or credit reduction for 2015. They are:


ABC Corporation has ten Connecticut employees in 2015. ABC Corporation’s FUTA tax due on each employee’s wages paid in 2015 would normally be $42 ($7,000 x 0.6%). But since Connecticut is a credit reduction state and subject to the BCR Add-on tax for 2015, the total FUTA tax owed per worker is $189, 450% of the normal FUTA tax paid per worker. For additional information, view this linked article from the IRS.

Affected Employers Should Plan for the Additional Tax Payment in January 2016
In the affected states, the credit reduction and BCR Add-on tax amounts represent the vast majority of taxes due for 2015. Normally, employers accrue and pay at the normal 0.6% rate during the year, with the additional amounts (in Connecticut’s case an additional $147 per worker) to be paid in January 2016 for 2015.
On Oct. 15, the Social Security Administration (SSA) announced that there will be no increase in monthly Social Security benefits in 2016, and that the maximum amount of wages subject to Social Security taxes will also remain unchanged at $118,500. Earnings above this amount are not subject to the Social Seucrity portion of the payroll tax or used to calculate retirement payouts.

Social Security is financed by a 12.4 percent tax on wages up to the annual threshold, with half (6.2 percent) paid by workers and the other half paid by employers. This taxable wage base usually goes up each year—it rose from $117,000 in 2014 to $118,500 in 2015. 

Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set, and therefore require new tax legislation to be changed.

For employees, the Medicare payroll tax rate is 1.45 percent on all earnings, bringing the combined Social Security and Medicare payroll tax for employees to 7.65 percent—with only the Social Security portion limited to the $118,500 earned-income threshold.

Employers also pay a matching 1.45 percent of wages to Medicaid, while those who are self-employed must pay both the employer and employee portions of FICA taxes.