US Department of Labor Final Overtime Rule – how does it impact my cash flows?

US Department of Labor Final Overtime Rule – how does it impact my cash flows?

CFO Connections attended a briefing from the US Department of Labor Wage and Hour Division on the final rule on overtime pay, effective January 1, 2020. Here are some of the important questions addressed during the briefing.

Q. How many workers will become overtime-eligible as a result of this Final Rule?

An estimated 1.3 million workers will become newly entitled to overtime protection because of the increase in the salary level.

Q. What will the “Overtime” Final Rule do?

The final rule updates the earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA’s minimum wage and overtime pay requirements. They are exempt if they are employed in a bona fide executive, administrative, or professional (EAP) capacity, as those terms are defined in the Department of Labor’s regulations at 29 CFR part 541 .

Q. What is “overtime”?

Unless specifically exempted, employees covered by the FLSA must receive pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half their regular rate of pay. This rate is referred to as “overtime” pay.

Q. What determines if an employee falls within one of the exemptions?

To qualify for an exemption in this rule an employee generally must:

  1. be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. be paid at least a specified weekly salary level, which is $684 per week (the equivalent of $35,568 annually for a full-year worker) under this final rule (the “salary level test”), the current salary level is $455 per week (the equivalent of $23,660 annually for a full-year worker); and
  3. primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).

Certain employees are not subject to either the salary basis or salary level tests (for example, doctors and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (HCEs) who earn above a higher total annual compensation level ($107,432 under this final rule) and satisfy a minimal duties test.

Q. May employers use bonuses to satisfy part of the new standard salary level test?

Yes. In recognition of evolving pay practices, the Department is permitting employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement. Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity or profitability (e.g., a bonus based on the specified percentage of the profits generated by a business in the prior year). The Department recognizes that some businesses pay significantly larger bonuses; where larger bonuses are paid, however, the amount attributable toward the EAP standard salary level is capped at 10 percent of the required salary amount.

For employers to credit nondiscretionary bonuses and incentive payments (including commissions) toward a portion of the standard salary level test, such payments must be paid on an annual or more frequent basis.

Q. May employers make a catch-up payment in the event that an employee doesn’t receive enough in nondiscretionary bonuses and incentive payments (including commissions) in a given year to remain exempt?

Yes, if an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given 52-week period to retain his or her exempt status, the Department permits a “catch-up” payment at the end of the 52-week period. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 52-week period). Any such catch-up payment will count only toward the prior 52-week period’s salary amount and not toward the salary amount in the 52-week period in which it was paid. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the previous 52-week period.

Q. When will these changes take effect?

The effective date of this final rule is January 1, 2020.

Q. What Should Employers Do Now?

The DOL estimates that approximately 1.3 million additional workers will now be eligible for overtime under this new rule.  Over the remainder of the year, employer should strongly consider taking the following steps:

  1. Identify employees who will need to be reclassified, i.e. current employees who are currently exempt but are paid less than $35,568 annually.
  2. Analyze the financial impact of either raising pay to the new threshold level, reclassifying the position as non-exempt and paying overtime, or lowering hourly pay to offset the overtime requirements.
  3. Review job descriptions and tasks to ensure that your employees are properly classified.
  4. Consider how pay changes or other changes in job assignments may impact your business.
  5. Consult with your employment attorney to ensure compliance and help maneuver your business through the DOL regulations and classification changes. 

We’ve highlighted the core of the final rule. For a list of complete FAQs, please go to the US Department of Labor website

During the briefing, the USDOL Community Outreach and Planning Specialist indicates that the DOL typically goes back two years when reviewing employers compliance with the overtime rule unless it finds employer willfully neglect compliance, in which case, DOL will go back three years. In addition, DOL investigators focus more on substance of the job duties rather than form and investigators typically interview employees to gain an understanding of their job duties.

CFO Connections is ready to help you determine the cash flows impact as a result of this final rule. Contact us for further discussion.

5 Key Financial Challenges Facing Entrepreneurs on Exit

Nearly 75% of entrepreneurs will exit their businesses in 10 years.

Small business owners dedicate most of their life to their business. In many ways, it’s like their baby. They put all their savings and energy into it for years on end so it can thrive and truly succeed. They experience their share of ups and downs, but press ahead because they believe in the business and want it to grow.

But what happens when it comes time to hand over their business and let someone else take care of what they built with their sweat and tears? Doing so means accepting that they no longer make key decisions for its future. So, while they are still in the driver seat, what are some of the key financial and non-financial challenges they should be thinking about and planning ahead for?

1.Wealth preservation – Because the business owner’s wealth is concentrated on one company, business owner needs to think about the lifestyle he desires to have after exit through preserving wealth. A business owner should run an analysis on cash flows needed after exit in order to maintain current lifestyle to determine the amount of proceeds to be received when the business is sold.

2. Tax mitigation – this should be part of a strategy in exit planning since it will have a big impact on the amount of proceeds ultimately enjoyed by the business owner. A business owner looking to sell their business should consult tax professionals when planning for exit to minimize tax impact and maximize after tax cash flows.

3. Asset protection – after the business is sold, a business owner is on the radar and more exposed to a lot of people and could lead to potential frivolous litigations. Business owners need to work with professionals who can help them protect the cash flows in order to preserve wealth after exit.

4. Wealth transfer – A business owner needs to think about how to ultimately get the proceeds to family. This will be part of the estate planning process that is crucial for same or next generation wealth transfer.

5. Charitable intent – Most business owners want to fill the void that is left behind after selling their businesses and they often turn to philanthropy effort to make a difference in their communities.

How soon should a business owner start preparing to sell his business?

1.Time frame for exit planning – if you ask M&A professionals and business brokers, they would tell you yesterday is the perfect timing! Business owners who are heavy on operating the business often complain that they have no time to plan. With the strong market that we have currently, business owners could expect to sell their business in six months if they are willing to move quickly and aggressively towards their end goals. However, for proper planning for the challenges lie ahead – like the ones described – the recommended time frame is two to three years prior to exit to allow sufficient time to get personal affairs and business planning in order. Business owners often underestimate the amount of details that potential buyers will want to look at. Therefore, properly planning for exit will allow a business owner to focus on preparing for the potential buyers’ request for information. If you fail to plan, that often means you plan to fail.

2. Maximizing value – CPAs should advice clients reading for a liquidity event to get their financial statements in tip top shape; perhaps there has been some personal expenses running through the business that can be cleaned up or avoided? clean financials; what should we do now to get financials in order to achieve max value; what expenses are driving in the business now that shouldn’t be driving right now if we are planning for exit; how close can we get to accrual/GAAP basis?;

Other nonfinancial concerns

1.Filling that void after the exit – having your own business is very consuming of your life and it becomes a big part of you and your life. After a business owner sells his business, there is often a void, and something needs to fill that void since the life purpose isn’t there anymore. Business owners need to think about what they would like to do when they are no longer working and find new purpose in life.

2. Coordinate (quarterback) the process – A good advisor should be gathering a team to help a business owner build an exit strategy, and coordinating everything from A to Z. A good quarterback does not have to be an expert on taxes, financial reporting, estate planning, and business planning, all at the same time. Rather, a good quarterback must be a great communicator and be able to understand the emotions a business owner is going through during the process, and to pull together a team of other experts who have the best interest of the business interest at heart. CPAs typically have a knack in understanding the capabilities of other professionals.  They are typically conservative and level-headed, and often compliment the high energy of business owners.

Do you have an advisor you can count on when you are ready to move to the next stage of your life?

Entrepreneur Accounting

Steve Case, AOL founder and venture capitalist, is convinced the future of American startups lies outside of Silicon Valley. In April, he’ll head to Florida and Puerto Rico to prove it.


You had a great idea that solves a huge problem many people have. You thought to yourself, “I’m going to solve this and make this problem go away”! You drew up a business plan, picked up the phone and lined up suppliers and business allies, got your spouse’s support, and BOOM! You did it! You are now an entrepreneur.

Despite accounting’s boring reputation, however, it can’t be emphasized too much how essential it is that your business follow accounting’s best practices right from the start. In fact, financial mismanagement is an oft-cited reason for business failure. An influential study by CB Insights of 101 failed startups found that cash flow was the No. 2 reason why some of those small businesses failed, and was second only to businesses trying to sell a product that their market didn’t need.

So, whether you’re a bootstrapped startup or you’ve secured funding, pay very close attention to proactively managing your business’s cash as it ebbs and flows. That kind of attention is vital for both long and short-term success.

Doing it right from the get-go!

Building a strong and accurate foundation is an absolute investment in your business success. From selecting the right accounting software to understanding the stories behind your financial reports, an experienced accounting professional can provide the guidance you need to help you make the right decisions. You are good at what you do, and you want to nurture it with your time and energy. So why won’t you hire a professional and let them take care of the accounting for you? Investing in your accounting and finance function from the beginning will save you a lot of stress, time and money down the road. It’s an investment that will prove valuable as you grow and build your legacy.

Don’t let growing pain stop you!

Your business is taking off and you are making a name for yourself. Customers want more of what you offer, and investors want in as your business partners. On top of that, you can’t keep doing the job of a 3-person team anymore. You need to hire! Growing pain is a necessary part of the growing process but it doesn’t have to be stressful if you make the investment at the beginning. If your accounting and finances are in order, you will be able to strike while the iron is hot by producing timely AND accurate financial statements to investors. Accurate financial information can also help you dial into your cash flows patterns, determine pricing, evaluate how big of a team you need to build and how much to pay them. Your early investment in accounting will deliver the vital information to you so that you can decide on the right commitment to make in this crucial phase of your business.

Key to Your Legacy!

Investing in a strong accounting function is one of the best ways to create value in your business. It shows that you are a goal and growth-oriented business owner and sets yourself apart from your competition. Business owners who invest in building a strong accounting function are often able to maximize the value of the business and reap dividends at the time of exit. This is because the business has good cash flows, effective internal controls, timely AND accurate financial information, audited financial statements and strong financial leadership. Your CFO should be able to quarterback your exit planning process by gathering a team of professionals to help you mitigate tax impacts of the transaction, wealth preservation and transfer, asset protection and charitable giving, etc. Finance and accounting professionals have a knack in understanding and assessing the capabilities of other professionals. They are often more conservative, level-headed, complimenting the skillsets of the business owners.

Final Thoughts

No matter what type of business you run, never underestimate the importance of employing accounting best practices for your business from the very start. This may not seem like the top priority in the early stages of your startup, but as your business grows and demands more of your time, effective accounting and cash-flow management structures will become critical to your business’ ability to scale.

At CFO Connections, we are entrepreneurs with 20 years of accounting and finance experience. We feel the excitement and growing pains you feel because we’ve been there. We know that entrepreneurs at different stages of their business often invest differently in their accounting functions. Therefore, we have options for you to choose from that best compliment your desired level of investment. Make the investment right now and watch your business reap its benefits in the years to come.

Contact us.

Curing CPAs and Business Owners’ Pain

Most of us are home owners. With home ownership comes the responsibility of maintaining your homes… doing yard work, trimming trees, cleaning the pool, servicing and maintaining equipment and appliances, etc. The list goes on and on. The challenges most home owners face are time and expertise. Most neither know how to properly maintain their homes nor do they have the time because of their demanding professional lives and busy families. So what is the solution? Home owners often outsource these responsibilities to professionals. Enter the yard guy, the tree guy, the pool boy and the handyman.  The outcome is a house well maintained, more time to focus on their career and spend with family.

If you are also a business owner, you face a very similar situation when running your business… managing your workforce, staying at the forefront of technology, marketing your products and services, staying out of legal troubles and the most dreaded one of all – managing your accounting, finance and reporting compliance. For most business owners, managing the accounting function is simply a distraction from what they love to do – growing their business. Accounting is mostly seen as a regulatory burden and most small to medium sized businesses do not have the time or expertise to proactively manage their business finances. This is especially true for emerging and fast growing businesses when most of the resources are dedicated to marketing and growing sales. To make matters worse, it is often difficult for businesses to find competent accounting professionals. The end result is a frustrated business owner unable to rely on his books and records and for outside accountants to spend a significant amount of time fixing errors clients make.

So what is the solution? Enter CFO Connections – accountants and business owners’ life saver. We want to share with you the struggles that some of our clients faced and how we were able to cure their pains for them.

An SEC reporting company is in an industry that is rapidly accelerating and growing. The founder of the operations maintains dual role as the company’s CEO and CFO. With investors knocking on his door, he knew that he was in the right place at the right time and that it is important to maintain reliable information for existing and potential investors. However, he couldn’t find the time away from managing the company’s accounting, reporting, compliance and risk management issues. CFO Connections was hired to manage these important functions for the company. With the pain of handling the accounting off his shoulders, our client was finally able to devote more time on investor relations and bring better focus to operations. We have been successful in eliminating the CEO and CFO’s stress by collaborating with the company’s auditors, attorneys and insurance brokers on important accounting, reporting, compliance and risk management matters.

Another one of our clients has a great accounting team in place but is lacking the expertise to handle an element in their accounting and reporting function that requires a heavy dose of management’s estimates. This has become a stressor for the company in meeting its reporting deadlines. CFO Connections was brought in to cure this pain for our client. We provided a road map for the CFO in developing its estimates, helped him anticipate questions from the auditor and provided a disclosure framework that was easy to follow. The end result was the new found time and expertise for our client. CFO Connections is now part of the company’s strategic growth team to help align the proper resources and position the company for growth.

A fast growing service company has great plans for growth but its financial controller just wasn’t on the same page with the company and eventually parted ways with the company. Due to rapid growth, the company was in desperate need of finding a financial controller before the accounting becomes unmanageable. In the interim, the company hired CFO Connections as its interim financial controller. We not only bridged the “GAAP” for the company, but also saw areas where improvements were much needed, e.g. internal controls, team coaching and mentoring, financial planning and analysis, etc. We were able to eliminate the stress of accounting from the owners, transition the new financial controller into his role, and collaborate with management team on processes and internal control improvement.

Are you a business owner, CFO or controller who is experiencing pain? If you are an accountant in public practice, are your clients in pain? Do you have poor realization on your time because you spend too much time fixing your client’s mistakes? It is very important to address the source of the pain timely before it becomes unmanageable. The holiday is upon us. Will you be spending time feeling stressed out and worried? Or will you be spending time with loved ones? Let CFO Connections give you that time and cure your pain!