Around the Corner: Are You Ready?

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1 FLSA s New Overtime Rules Are Right w Around the Corner: Are You Ready? Presented by: Your Name Kathy Helmke Title HR Government Affairs Director Organization MRA MRA 2016 HR Conference WHAT WE WILL DISCUSS TODAY Brief history and purpose of FLSA Comparison of final regulations to current requirements Review of exemptions Process and timeline to comply Steps employers need to take 2 MRA 2016 HR Conference Session 2B 1

2 WHAT FLSA COVERS 01 Minimum wage 03 Youth employment standards 02 Overtime pay 04 Recordkeeping 3 EXEMPT STATUS THE BASICS How an employee is paid Status of employee s position Salaried Hourly or Salary Basis Nonexempt or Exempt Exempt Hourly Non exempt MRA 2016 HR Conference Session 2B 2

3 EXEMPTIONS Executive Employees Administrative Employees Professional Employees Learned w Creative Teachers Computer Employees Outside Sales Employees Three Criteria for Exemption Status Salary Basis Minimum Weekly Salary Threshold Duties Requirements MRA 2016 HR Conference Session 2B 3

4 SALARY BASIS Exempt executive, administrative, professional, or computer employees must be compensated on a salary basis at a rate of not less than $455 per week Computer employees may also qualify if they are compensated at least $27.63 per hour 7 SALARY BASIS 2004 Regulations Proposed in Final Regulations Effective December 1, 2016 Exempt executive, administrative or professional or computer employees compensated on a salary basis at a rate of not less than $455 per week Computer employees compensated at least $27.63 per hour $970 per week ($50,440 per year) Unchanged w $913 a week ($47,476 per year) To be Updated every 3 years Equal to 40 th Percentile of earnings of FT Salary Workers in the lowest wage census region of US Unchanged Highly compensated employees performing office or non manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) $122,148 per year (which must include at least $970 per week paid on a salary or fee basis) $134,004 MRA 2016 HR Conference Session 2B 4

5 PRIMARY DUTY Principal, main, major or most important duty that the employee performs. JOB DUTIES 2004 Regulations Generally, the majority of work must be exempt level work, but time alone is not determinative Proposed in 2015 Unchanged 2016 Final Regulations Effective December 1, 2016 Unchanged: the DOL believes that the increased salary threshold ensures that employees who meet the salary threshold are most likely primarily performing exempt work. For workers with salaries above the w updated salary level, employers will continue to use the same duties test to determine whether or not the worker is entitled to overtime pay. MRA 2016 HR Conference Session 2B 5

6 NONDISCRETIONARY BONUSES/ INCENTIVE PAYMENTS 10% cap on amount Input requested from stakeholders Must be paid at least quarterly Catch Up Paymentend of each quarter FINAL REGULATIONS: TIMELINE Release date of May 17, 2016 Effective December 1, 2016 All employers must be in compliance by the effective date MRA 2016 HR Conference Session 2B 6

7 WHAT SHOULD EMPLOYERS DO? 01 Review and update current job descriptions 02 Review classifications to ensure they are consistent with what the FLSA requires 03 Identify jobs currently classified as exempt that will be impacted by the new rule 04 Determine how changes will be implemented REVIEW AND UPDATE CURRENT JOB DESCRIPTIONS Up to date? Accurately reflect the duties performed? MRA s FLSA Toolkit has updated job description template MRA 2016 HR Conference Session 2B 7

8 REVIEW POSITIONS FOR FLSA EXEMPTIONS Executive Employees Professional Employees Learned Creative w Teachers Computer Employees Outside Sales Employees Administrative Employees EXECUTIVE EXEMPTION Primary duty is to: Manage the enterprise in which the employee is employed or manage a customarily recognized department or subdivision thereof; Customarily and regularly direct the work of two or more other employees; and Have the authority to hire or fire other employees or make suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight. 16 MRA 2016 HR Conference Session 2B 8

9 Executive Exemption Management activities include: Interviewing Selecting and training of employees Setting and adjusting employee rates of pay and hours of work Directing work Maintaining production or sales records for use in supervision or control Appraising employee productivity and efficiency for the purpose of recommending promotions or other changes in status Handling employee complaints and grievances Disciplining employees Planning work Determining work techniques Apportioning work among employees Determining the type of materials, supplies, machinery, or tools to be used or merchandise to be bought, stocked, or sold Controlling the flow and distribution of materials or merchandise and supplies Providing for the safety of employees and the property Planning and controlling the budget Monitoring or implementing legal compliance measures 17 EXECUTIVE EXEMPTION: Quick Assessment The employee MUST supervise two or more full time employees. What to assess: The specific management duties the employee performs. If the employee does not supervise two or more fulltime employees, the employee does not meet the executive exemption. If the employee supervises two or more employees but does not manage a department or department unit/subdivision, the employees does not meet the executive exemption. How to assess: Review the organization s and/or department s organizational chart. 18 MRA 2016 HR Conference Session 2B 9

10 PROFESSIONAL EXEMPTION Primary duty: Involves work requiring knowledge of an advanced type in field of science or learning customarily acquired by prolonged course of specialized intellectual instruction, or Involves work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor, or Involves teaching, tutoring, or instructing, or lecturing in the activity of imparting knowledge and who is employed and engaged in this activity as a teacher in an educational establishment 19 PROFESSIONAL EXEMPTION Examples of jobs that fulfill the knowledge of an advanced type in field of science or learning customarily acquired by prolonged course of specialized intellectual instruction requirement: Medicine Theology Accounting Actuarial computation Engineering Architecture Teaching Various types of physical, chemical, or biological sciences Pharmacy 20 MRA 2016 HR Conference Session 2B 10

11 Professional Exemption: Quick Assessment The employee MUST have a minimum of a Bachelor s Degree in a field related to the work that the employee will perform. What to assess: The degree required. If an employee may be promoted into the position without a four year degree, or the degree may be in any number of fields (for example, Business, Liberal Arts, Fine Arts), the learned professional exemption will not apply. How to assess: Review the minimum educational qualifications of the job. 21 PROFESSIONAL EXEMPTION: Quick Assessment The employee MUST have a minimum of a Bachelor s Degree in a field related to the work that the employee will perform. What to assess: The degree required. If an employee may be promoted into the position without a four year degree, or the degree may be in any number of fields (for example, Business, Liberal Arts, Fine Arts), the learned professional exemption will not apply. How to assess: Review the minimum educational qualifications of the job. 22 MRA 2016 HR Conference Session 2B 11

12 COMPUTER JOBS EXEMPTION Primary duty involves one or a combination of the following: Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; Design, development, documentation, analysis, creation, testing or modification of computer w systems or programs, including prototypes, based on and related to user or system design specifications; Design, documentation, testing, creation or modification of computer programs related to machine operating systems; or a Combination of the aforementioned duties, the performance of which requires the same level of skills. COMPUTER JOBS EXEMPTION: Quick Assessment The employee MUST be a: computer systems analyst, programmer, software engineer, or other similarly skilled worker in the computer field. What to assess: Job duties. Employees in the manufacture or repair of computer hardware and related equipment do not qualify for the exemption, nor do help desk employees, drafters and others skilled in computer aided design software. How to assess: Review the essential functions of the job. 24 MRA 2016 HR Conference Session 2B 12

13 OUTSIDE SALES EXEMPTION Primary duty is: Making sales or Obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid w by the client or customer; and Who is customarily and regularly engaged away from the employer s place or places of business in performing his/her primary duty. OUTSIDE SALES EXEMPTION: Quick Assessment The employee MUST be regularly away from the employer s place of business (which includes the employee s home if the employee works from home). What to assess: The frequency of visiting customers. Employees must visit customers at the customers facilities on more than an occasional, but less than constant, basis. Outside sales does not include sales made by mail, telephone or the Internet unless this contact is done in connection with sales made by personal contact. Finally, drivers who sell qualify for the outside sales exemption only if their primary duty is the sale of the employer s product rather than driving. How to assess: Evaluate the percentage of time that the sales person is in your office. Does the sales person have an office or a workstation? MRA 2016 HR Conference Session 2B 13

14 ADMINISTRATIVE EXEMPTION Primary duty is the: Performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer s w customers; and Includes the exercise of discretion and independent judgment with respect to matters of significance. ADMINISTRATIVE EXEMPTION The phrase...directly related to management policies or general business operations. means that administrative exempt employees must perform work directly related to assisting with the running or servicing of the business. w The term discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. MRA 2016 HR Conference Session 2B 14

15 ADMINISTRATIVE EXEMPTION Discretion and independent judgment includes the following actions. Does the employee Have the authority to formulate, affect, interpret, or implement management policies? Carry out major assignments in conducting the operations of the business? Perform work that affects business operations to a substantial degree? Have the authority to commit the employer in matters that have significant financial impact? Have the authority to waive or deviate from established policies and procedures without prior approval? Have the authority to negotiate and bind the company on significant matters? Provide consultation or expert advice to management? Perform work that involves planning long or short term business objectives? Investigate and resolve matters of significance on behalf of the employer? Represent the company in handling complaints, arbitrating disputes, or resolving grievances? ADMINISTRATIVE EXEMPTION: Quick Assessment The answer MUST be Yes to ALL of the following: The position is an office job that is performed in every organization (for example, Marketing, HR, Legal, or Accounting). There would be significant consequences to the organization (not simply to the department) if the work were not performed. The employee has the authority to negotiate and bind the company on significant financial matters. The work is important and key to the organization s success. What to assess: The employee s decision making authority. If the employee (1) regularly performs work of a repetitive nature, (2) has a low level spending limit on how much he/she may negotiate on behalf of the company, (3) does not make policy, and (4) may not deviate from policy without prior approval, the employee most likely does not meet the administrative exemption. How to assess: Review the employee s specific job duties. MRA 2016 HR Conference Session 2B 15

16 PUTTING IT ALL TOGETHER: EXERCISE Org chart Essential functions Number of employees supervised Types of decisions Educational requirements 31 MARKETING ORGANIZATIONAL CHART Jane, Marketing Manager Ken, Marketing Supervisor Employee Employee Employee 32 MRA 2016 HR Conference Session 2B 16

17 DUTIES PERFORMED: MARKETING MANAGER Serves as the key contact person in the organization for all marketing related matters Plans and manages the organization s marketing strategy Recommends new marketing initiatives to Acme executives Responsible for managing the marketing department Has final authority on the selection and hiring w of new employees Conducts employee performance reviews and approves salary adjustments Conducts or oversees employees progressive discipline, up to and including terminations Approves all terminations Plans and manages the unit budget Responsible for legal and regulatory compliance The minimum educational requirement for the position is a Bachelor s Degree in Marketing or related field WHICH EXEMPTIONS APPLY? Executive Professional Computer Outside Sales Administrative MRA 2016 HR Conference Session 2B 17

18 Exemption Summary Position Executive (Y/N), Rationale Professional (Y/N), Rationale Computer (Y/N), Rationale Outside Sales (Y/N), Rationale Administrative (Y/N), Rationale A. B. C. 35 IDENTIFY JOBS LIKELY IMPACTED BY NEW RULE Salary Maybe duties MRA 2016 HR Conference Session 2B 18

19 BELOW SALARY OF $970/WEEK Raise salaries to new minimum level and retain exempt status Determine financial impact Re classify as nonexempt Calculate new hourly rate Review Handout MRA s FLSA Toolkit has calculator to assist in determining financial impact of salary changes DETERMINE HOW CHANGES WILL BE IMPLEMENTED 01 Across the entire company 02 By department 03 By functional area 04 On case by case basis MRA 2016 HR Conference Session 2B 19

20 CONSEQUENCES OF NON COMPLIANCE Department of Labor actions Investigations Lawsuits for unpaid overtime wages and an equal amount as wliquidated damages Injunctions to restrain any person from violating the FLSA May require employer to change employment practices CONSEQUENCES OF NON COMPLIANCE Individual action Employee lawsuit for back pay and an equal w amount as liquidated damages, plus attorney s fees and court costs MRA 2016 HR Conference Session 2B 20

21 CONSEQUENCES OF NON COMPLIANCE Penalties and sanctions Willful violations of the FLSA may be prosecuted criminally and the employer fined up to $10,000, w Second conviction may result in imprisonment. Employers who willfully or repeatedly violate overtime pay requirements are also subject to a civil money penalty of up to $1,100 per violation CONSEQUENCES OF NON COMPLIANCE Statute of Limitations The DOL will investigate claims going back three years from the date the claim w is filed for willful violations of the FLSA, and two years for claims where no such willfulness is apparent. MRA 2016 HR Conference Session 2B 21

22 CONSEQUENCES OF NON COMPLIANCE Back wages Changes in w employment practices CONSEQUENCES OF NON COMPLIANCE Willful violations may be prosecuted criminally and fined up to $10,000 Second conviction may result in imprisonment w Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to civil money penalties of up to $1,100 per violation MRA 2016 HR Conference Session 2B 22

23 QUESTIONS w COMMENTS Thank you! Visit us at We re social! Follow us on your favorite social networks MRA 2016 HR Conference Session 2B 23

24 Three Criteria for Exemption Status Salary Basis Minimum Weekly Salary Threshold Duties Requirements Three Criteria for Exemption Status Salary Basis Minimum Weekly Salary Threshold Duties Requirements MRA 2016 HR Conference Session 2B 24

25 SALARY BASIS Exempt executive, administrative, professional, or computer employees must be compensated on a salary basis at a rate of not less than $455 per week Computer employees may also qualify if they are compensated at least $27.63 per hour 49 SALARY BASIS 2004 Regulations Proposed in Final Regulations Effective December 1, 2016 Exempt executive, administrative or professional or computer employees compensated on a salary basis at a rate of not less than $455 per week $970 per week ($50,440 per year) w $913 a week ($47,476 per year) To be Updated every 3 years Equal to 40 th Percentile of earnings of FT Salary Workers in the lowest wage census region of US Computer employees compensated at least $27.63 per hour Highly compensated employees performing office or non manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) Unchanged $122,148 per year (which must include at least $970 per week paid on a salary or fee basis) Unchanged $134,004 MRA 2016 HR Conference Session 2B 25

26 PRIMARY DUTY Principal, main, major or most important duty that the employee performs. JOB DUTIES 2004 Regulations Generally, the majority of work must be exempt level work, but time alone is not determinative Proposed in 2015 Unchanged 2016 Final Regulations Effective December 1, 2016 Unchanged: the DOL believes that the increased salary threshold ensures that employees who meet the salary threshold are most likely primarily performing exempt work. For workers with salaries above the w updated salary level, employers will continue to use the same duties test to determine whether or not the worker is entitled to overtime pay. MRA 2016 HR Conference Session 2B 26

27 NONDISCRETIONARY BONUSES/ INCENTIVE PAYMENTS 10% cap on amount Input requested from stakeholders Must be paid at least quarterly Catch Up Paymentend of each quarter FINAL REGULATIONS: TIMELINE Release date of May 17, 2016 Effective December 1, 2016 All employers must be in compliance by the effective date MRA 2016 HR Conference Session 2B 27

28 Scenario: Transitioning Pay Joe is currently classified as exempt and is paid a weekly salary of $ (the equivalent of $31,200/year) and works an average of 45 hours/week. Joe s position is being reclassified as nonexempt. Options Pros Cons 1: Exempt Salary to Nonexempt Hourly Approach, based on 40 hour/week schedule: Regular Rate of Pay = $600.00/40 hours = $15.00 Overtime Rate of Pay = $15.00 X 1.5 =$22.5 Simple way to calculate an hourly rate Easy to communicate and understand Higher morale for employee overtime Higher wage costs for company: Regular Rate ($15.00 X 40 hours) = $ Overtime Rate ($15.00 X 1.5) =$22.5 X 5 hours= $ Total Pay ($ ) = $ weekly, and $37, annually, resulting in annual increase of $5, ($37, $31,200.00) 2. Exempt Salary to Nonexempt Hourly Approach, with consideration of regular hours worked over 40: Regular Hours = 40 Overtime Hours = 5 total hours per week = 45 Regular Rate of Pay = $600.00/45 hours= $13.33/hour Overtime Rate of Pay = $13.33 X 1.5 overtime premium = $20.00/hour X 5 hours $ Combination Salary and Hourly Approach: Employees receives salary representing straight time pay for all hours worked in a workweek. (Note: Nonexempt employees are allowed to be paid a set or fixed salary per week; however they must be compensated for any time worked over 40 in a workweek.) Employer first needs to set the fixed regular weekly salary (for this example, the agreement between the employer and employee is that the salary will be $600.00/week). Since this salary constitutes wages at straight time for all hours worked, the employers would still owe an additional half time for any hours the employee works in excess of 40 in a workweek. If employee works 45 hours, the calculation is as follows: Regular Rate of Pay: $600/45 hours = $13.33 Overtime Rate of Pay= $13.33/2 = $6.67 (since all hours have already been paid at straight time, the employer only needs to account for the half time.) Overtime Pay= 5 hours X $6.67=$33.35 Most closely represents what the employer is currently paying employee on weekly basis Reduces impact of the potential increased labor costs on the employer Guarantees employee a fixed salary (something he is already accustomed to) while also compensating employee for hours worked over 40. Requires employer to recalculate every exempt employee s regular rate based on regular hours worked over 40. It is possible that one employee may have averaged 45 hours while another might have averaged 50 hours. Difference in hours may have a significant impact on the hourly rate employees in similar position receive May negatively affect morale Higher wage costs for company: Regular Rate ($13.33 X 40 hours) = $ Overtime Rate = $13.33 X 1.5 overtime premium = $20.00/hour X 5 hours $100 Total Pay ($ $100) = $ weekly, and $32, annually, resulting in annual increase of $1, ($32, $31,200.00) Requires employer to establish a fixed minimum salary for 40 hours which must be paid even if employee only works 35 hours in a workweek May negatively affect morale: If employee works between 40 and 45 hours, total wages would be lower than what employee was accustomed to when he was exempt. Higher wage costs for company: Weekly Earnings= $ Salary + $33.35 Overtime = $ or $32, Annually Result: Annual increase of $1, ($32, $31,200.00)