IRS audit spurs change to overtime compensation policy
The University of Idaho Faculty Senate approved a change in the overtime compensation policy after an IRS audit concluded a previous UI payroll practice was not tax compliant.
Dan Stephens, university controller said the IRS found UI’s practice of letting employees decide how they would be compensated for overtime work after the hours were already logged was not tax complaint.
Employees still decide if they want to be paid monetarily or with additional time off, but now the policy requires them to decide how they want to be compensated prior to logging any overtime hours.
“We looked at a lot of options, at the end of the day we came back with this,” said University Controller Dan Stephens during last week’s Faculty Senate meeting.
He said UI supervisors and employees were not aware the practice was not tax compliant because it had always been done that way.
“People just didn’t realize it,” he said.
After the IRS decided the practice was not tax compliant, Stephens said UI immediately suspended the policy and required all departments to pay their employees in cash for overtime work, which did not provide flexibility for employees or department budgets.
With Faculty Senate approval, the policy heads to a vote at the All-Faculty Meeting Jan. 15. If approved, the policy would have to be signed off by UI President Chuck Staben before taking effect. Stephens said he hopes the policy could be implemented as early as possible in 2015.
The proposed policy requires employees to decide beforehand how they will be compensated for their overtime work, Stephens said. As part of the policy, he said employees could carry a maximum of 80 overtime hours — two weeks off — into the next calendar year and would be paid in cash for any additional overtime hours.
Stephens said employees will personally elect which overtime compensation option they would like for the next calendar year.
He also said the policy will allow some flexibility to UI employees in how they are compensated and allow departments to better manage their budgets in seasons of high overtime work.
“We’ve worked through the IRS rules to try to get compliant with the rules, but still create a policy that allows a little bit of flexibility,” Stephens said.
Stephens said supervisors do not have any control over what option the employee chooses, but can encourage employees to take a specific overtime compensation method depending on their job.
Stephens said there are concerns about how an employee with a large buildup of overtime would be allowed to take an extended amount of time off. He said supervisors would have to work with their employees and increase communication to ensure their earned time is taken off.
“It creates a more active relationship between the employee and the manager,” he said.
Stephens said he and other administrators tasked with developing a policy worked with Staff Affairs to create a policy best suited for a majority of staff. He said administrators took input from faculty, staff and representatives from large staff departments on campus and held town-hall meetings to explain the policy and gather input.
Even though the policy did not come through a Faculty Senate committee, Faculty Senate Chair Marty Ytreberg said the policy had the support of both faculty and staff members.
Ytreberg said Stephens and the committee did a great job of reaching out to staff members early on in the policy process to get their support.
Ryan Tarinelli can be reached at [email protected]