Fair Labor Standards Act THE NEW OVERTIME EXEMPTION THE WHITE COLLAR WORKER

Fair Labor Standards Act THE NEW OVERTIME EXEMPTION THE WHITE COLLAR WORKER

The Fair Labor Standards ACT (FLSA) Minimum wage ($7.25 / hour) Overtime pay at 1.5 x regular rate of pay for all hours worked over 40 in a workweek Does not apply to exempt employees Recordkeeping Requirements Requirements for youth employment New Rule goes in to effect December 1, 2016

The Dept. of Labor s objective The Dept. of Labor estimates that 5 million workers under the new rule will be reclassified from exempt to non-exempt.

What did the rule do? The Dept. of Labor revised final regulations under the FLSA implementing the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. AKA the White Collar Exemption.

What did it change? The change focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Executive: Administrative: Professional workers: It did not change the job duties test for exemption

Salary and compensation change Updated the salary level from $23,660 per year ($455 per week) to $47,476 annually ($913 per week) for a full-year worker

Key Provisions of the Final Rule 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). 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). 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.

Key Provisions of the Final Rule (cont.) It amended 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 Exemption Test Job Duties Primarily involve executive, administrative, or professional duties as defined by the regulations Salary Basis Fixed Predetermined Quality and quantity not a factor in wages Salary Level Raises salary level from $455.00 per week ($23,660 / year) to $913.00 / week ($47,476.00 / year) Can be paid biweekly, semimonthly, or monthly.

Exempt vs. Non-exempt To be classified as exempt: 1) employee must meet salary basis test No reduction for quality or quantity 2) Employee must make $913.00 / week to meet salary level test 3) Employee s primary job duties must involve executive, administrative, or professional duties as defined by the regulations

Misclassification Do not misclassify an employee of exempt because they are on salary. All three factor must be met, otherwise the employee is non-exempt and must be paid overtime

Salary defined Must be free and clear. Cannot include: Lodging Board Impermissible deductions Travel costs Uniforms Nondiscretionary bonuses and incentive payments 10% of salary level only

Nondiscretionary bonuses Payments may include: nondiscretionary incentive bonuses tied to productivity and profitability. Must be paid quarterly Catch-up payment permitted Not applicable to HCEs

Permitted Deductions Absence from work for one or more full days for personal reasons other than sickness or disability For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness To offset amounts employees receive as jury or witness fees, or for temporary military duty pay For penalties imposed in good faith for infractions of safety rules of major significance

Permitted Deductions (cont.) For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions; In the employee's initial or terminal week of employment if the employee does not work the full week, or For unpaid leave taken by the employee under the Family and Medical Leave Act.

No salary requirements Outside sales Must be pure commission Lawyers Doctors Teachers Must be employed in an educational institution and primary duty of teaching Certain computer-related occupations Must be paid $27.63 / hour and meet job duties test Ex: Software engineers, network administrators, systems analysts, programmers.

Strategies for implementing new rule Don t change anything pay overtime. Employer may require approval of overtime Raise employee salary to meet salary level under new rule Alter Time Schedules Pay salary that takes into account potential overtime on newly classified non-exempt employee

Newly classified non-exempt employee Ex: A newly non-exempt employee who typically works 45 hours a week Reduce scheduling hours so the employee only works 40 hours a week Minimizes overtime pay

Newly classified non-exempt employee Ex: employee and employer agree to $800.00 / week for a 50 hour work week, Employee is entitled to 40 hours worked at $20.00 / hour ($800.00) plus 10 hours of overtime at $30.00 / hour ($30.00 x 10 = $300)

What areas will be hit hard? Salaries between $23,660 to $46,476 / year Middle management Food and Beverage Administrative Professionals An estimated 67,000 South Carolina employees will now receive overtime

Morale Some employees will be reclassified and have their hours reduced Change in salary can disrupt morale Update policies and practices to be ready for new rule

Sources Dept. of Labor, Wage and Hour Division https://www.dol.gov/whd/overtime/final2016/

Feedback? Will Kleindienst 843-647-7774 willk@pfluglaw.com