2016-10-05 New FLSA Overtime Changes
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The document discusses recent changes to the Fair Labor Standards Act (FLSA) regarding overtime regulations, particularly a new salary threshold of $47,476 effective December 1, 2016. It explains the exemptions for certain employee classifications and outlines potential actions for businesses to ensure compliance with the updated regulations, including reviewing job descriptions and training on time recording policies. Additionally, it highlights common mistakes employers make in classifying employees as exempt or nonexempt under the FLSA.
2016-10-05 New FLSA Overtime Changes
- 1. Thrive. Grow. Achieve. New FLSA Overtime Changes: What Your Business Needs to Know to React Accordingly… And Not to Panic Stacy Johnson, SPHR, SHRM-SCP, Manager, Managed HR Services October 5, 2016
- 2. RECENT NEWS HOUSE VOTES TO DELAY OVERTIME RULE: THE HOUSE VOTED 246-177 LAST WEDNESDAY (SEPTEMBER 28, 2016) TO DELAY IMPLEMENTATION OF THE LABOR DEPARTMENT'S CONTROVERSIAL OVERTIME RULE. THE RULE DOUBLES (TO $47,476) THE SALARY THRESHOLD UNDER WHICH VIRTUALLY ALL WORKERS ARE GUARANTEED TIME-AND-A-HALF PAY WHENEVER THEY WORK MORE THAN 40 HOURS IN A GIVEN WEEK. IT IS SUPPOSED TO TAKE EFFECT IN DECEMBER, BUT THE BILL WOULD PUSH IMPLEMENTATION TO JUNE 2017; THE WHITE HOUSE HAS PROMISED A VETO. REPUBLICANS VOTED UNANIMOUSLY FOR THE BILL, ALONG WITH FIVE DEMOCRATS: REPS. BRAD ASHFORD (NEB.), HENRY CUELLAR OF TEXAS, DAN LIPINSKI OF ILLINOIS, COLLIN PETERSON OF MINNESOTA, AND KYRSTEN SINEMA OF ARIZONA. PRIOR TO THE VOTE, REP. TIM WALBERG (R-MICH.), WHO INTRODUCED THE LEGISLATION, SAID THE OT RULE "BURDENS HARD-WORKING SMALL-BUSINESS OWNERS" AND "JEOPARDIZES VITAL SERVICES FOR VULNERABLE AMERICANS." BUT REP. BOBBY SCOTT (D-VA.) DISAGREED. HE SAID THE RULE WILL CREATE MORE THAN 100,000 JOBS. House Votes to Delay OT Rule
- 3. LEARNING OBJECTIVES •What’s Changed? DOL’s Final Rule revising the current “White Collar” exemption regulations •Clarification on the complex provisions of the FLSA •Common wage and hour law traps
- 4. FAIR LABOR STANDARDS ACT •THE FLSA REGULATES: –Minimum Wage (on the Federal level) –Overtime Pay –Child Labor –Equal Pay •THE FLSA DOES NOT REQUIRE OR REGULATE: –Breaks –Premium Pay or Shift Differentials –Raises –Vacation or Sick Leave –Holiday Pay –Severance Pay –Pension Benefits
- 5. OVERTIME PROVISION: EXEMPTIONS •“WHITE COLLAR” EXEMPTIONS (EXECUTIVE, ADMINISTRATIVE AND PROFESSIONAL) •THESE EXEMPTION CATEGORIES EACH HAVE A SALARY TEST AND A DUTIES TEST •EMPLOYEES WHO MEET THE TESTS FOR THEIR CATEGORIES DO NOT HAVE TO BE PAID OVERTIME PAY, REGARDLESS OF HOW MUCH OVERTIME THEY WORK •FLSA (FEDERAL) OVERTIME = IN EXCESS OF 40 IN A WORKWEEK
- 6. THE THREE TESTS 1. SALARY BASIS TEST: THE EMPLOYEE MUST BE PAID A PREDETERMINED AND FIXED SALARY, NOT AN HOURLY WAGE THAT IS SUBJECT TO REDUCTIONS BECAUSE OF VARIATIONS IN THE QUALITY OR QUANTITY OF WORK PERFORMED 2. SALARY LEVEL TEST: THE AMOUNT OF SALARY PAID MUST MEET MINIMUM SPECIFIED AMOUNTS 3. DUTIES TEST: THE EMPLOYEE’S JOB DUTIES MUST PRIMARILY INVOLVE MANAGERIAL, ADMINISTRATIVE OR PROFESSIONAL SKILLS DEFINED BY THE FLSA
- 7. $47,476 IS THE NEW FLOOR •MINIMUM THRESHOLD SALARY INCREASES FROM $23,660 ($455/WEEK) TO $47,476 ($913/WEEK) EFFECTIVE DECEMBER 1, 2016 •ANY EXEMPT EMPLOYEE MAKING LESS THAN $913 PER WEEK MUST BE 1. Given a raise to make their total compensation equal to new salary threshold, OR 2. Reclassified as a non-exempt employee who would now be entitled to overtime pay
- 8. INCENTIVE PAY AND THE SALARY BASIS NON-DISCRETIONARY BONUSES AND INCENTIVE PAY, INCLUDING COMMISSION AND BONUSES TIED TO PRODUCTIVITY AND PROFITABILITY, CAN SATISFY UP TO 10% OF THE THRESHOLD SALARY LEVEL • Must be made on quarterly or more frequent basis • Non-discretionary bonuses and incentive payments are forms of compensation promised to employees (i.e., promised ahead of time and based on a fixed formula) • By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer’s sole discretion and without any preannounced standards (i.e., holiday bonus)
- 9. NEXT STEPS REVIEW JOB DESCRIPTIONS – EVALUATE THE RESPONSIBILITIES FOR EXECUTIVE, ADMINISTRATIVE AND PROFESSIONAL DUTIES CONSIDERING INCREASING SALARY PAY OVERTIME WHEN INCURRED DECREASE PAY TO ACCOUNT FOR OVERTIME INCURRED RECLASSIFY AS NON-EXEMPT AND MANAGE HOURS WORKED TO AVOID POTENTIAL OVERTIME • Train on time recording policies TRANSFER JOB DUTIES/RESTRUCTURE WORK
- 10. REVIEWING RESPONSIBILITIES: DUTIES TEST •DUTIES TEST IS PERHAPS THE MOST COMPLEX PIECE OF THE REGULATION AND CHALLENGING TO EMPLOYERS •NO CHANGES TO DUTIES TEST AS PART OF THE NEW FINAL RULE •REMAINS A QUALITATIVE ASSESSMENT, AND ITS APPLICATION WILL LIKELY BE UNDER CLOSE SCRUTINY BY THE DOL –Increased Awareness –Litigation costs for class action lawsuits Executive Administrative Learned Professional Creative Professional Computer Professional Outside Sales
- 11. EXECUTIVE EXEMPTION TO QUALIFY FOR THE EXECUTIVE EMPLOYEE EXEMPTION, ALL OF THE FOLLOWING TESTS MUST BE MET: • The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $913 per week; • The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
- 12. PROFESSIONAL EXEMPTION TO QUALIFY FOR THE LEARNED PROFESSIONAL EMPLOYEE EXEMPTION, ALL OF THE FOLLOWING TESTS MUST BE MET: • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $913 per week; • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the constant exercise of discretion and judgment; • The advanced knowledge must be in a field of science or learning; and • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
- 13. ADMINISTRATIVE EXEMPTION TO QUALIFY FOR THE ADMINISTRATIVE EMPLOYEE EXEMPTION, ALL OF THE FOLLOWING TESTS MUST BE MET: • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $913 per week; • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
- 14. DOL’S DEFINITIONS FOR ADMINISTRATIVE EXEMPTION PRIMARY DUTY • The principal, main, major or most important duty that the employee performs DIRECTLY RELATED TO MANAGEMENT OR GENERAL BUSINESS OPERATIONS • Work directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment 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. Factors to consider include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval, and other factors set forth in the regulation. The fact that an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment. The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources. MATTERS OF SIGNIFICANCE • The level of importance or consequence of the work performed. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly.
- 15. WEIGHING THE OPTIONS Source: Society for Human Resource Management (SHRM), HR Magazine, July/August 2016
- 16. COMMON WAGE AND HOUR LAW MISTAKES •ASSUMING YOUR ORGANIZATION IS TOO SMALL TO BE COVERED BY THE FLSA •ASSUMING SALARY OR TITLE MAKES AN EMPLOYEE EXEMPT •ASSUMING SALARY WILL COVER OVERTIME •ALLOWING EMPLOYEES TO WORK “OFF THE CLOCK” •TRUSTING EMPLOYEES TO KEEP THEIR OWN TIME RECORDS •GIVING “COMP TIME” IN LIEU OF OVERTIME •FAILING TO PAY “CONTRACT EMPLOYEES” FOR OVERTIME •MAKING IMPROPER DEDUCTIONS •UNDERSTANDING COMPENSATORY TIME & HOURS WORKED Some states have their own wage and hour laws that may be more beneficial towards employees and should be carefully noted to ensure compliance
- 17. FLSA Checklist: Exempt vs. nonexempt status It’s up to employers to determine whether to classify an employee as exempt or nonexempt under the Fair Labor Standards Act (FLSA). The key consideration: Exempt workers aren’t eligible for overtime pay. Rather, they’re paid for the job they do, not the hours they keep. To comply with the FLSA, employers need to regularly review their employee classi- fications. Generally, two requirements must be met to classify an employee as exempt: 1) they must earn a salary and 2) hold a position with duties the U.S. Labor Department designates as appropriate for exempt positions. Those positions generally fall into six categories: executive, administrative, learned professional, computer professional, creative professional and outside sales.’ But it’s not that simple. That’s why HR Specialist prepared this checklist. Use it to determine whether your employees are exempt from the FLSA. (800) 433-0622 www.theHRSpecialist.com AUDIT: TEST YOUR COMPLIANCE To be considered exempt from overtime, an employee must generally be paid on a salary basis and his job duties must meet the Labor Department’s standards for one of the six exemption categories discussed below. Use this self-audit to test whether you’re properly classifying workers as exempt. s Executive Employee Answer the following questions to determine whether you’ve misclassified a worker as an exempt executive: Don’t Yes No Know 1. Is the employee’s primary duty managing the enterprise or a department or subdivision of the enterprise? u u u 2. Does the employee customarily direct the work of two or more other employees or their equivalent? u u u 3. Does the employee have the authority to hire or fire, and do her recommendations carry significant weight if unauthorized to make the final decision? u u u 4. Is the employee paid the equivalent of at least $455 per week on a salary basis? u u u If you answered “No” to any of these questions, you may have misclassified the worker as an exempt executive. Note: If the employee is at least a 20 percent owner of the business and meets requirements #1 and #2 above, he need not meet the salary requirement in #4 or the authority requirement in #3.
- 18. www.theHRSpecialist.com (800) 433-0622 s Administrative Employee Answer the following to determine whether a worker is misclassified as an exempt administrative employee: Don’t Yes No Know 1. Is the employee’s primary duty performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers? u u u 2. Does the employee exercise discretion and independent judgment with respect to matters of significance? That is, does he evaluate and compare possible courses of action and then make a decision or recommendation after considering the various possibilities? u u u 3. Is the employee paid the equivalent of at least $455 per week on a salary basis? u u u If you answered “No” to any of these questions, the employee may be misclassified as exempt administrative. s Learned Professional Employee Answer the following to determine whether a worker is misclassified as an exempt learned professional: Don’t Yes No Know 1. Is the employee’s primary duty to perform work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction? u u u 2. Is the advanced knowledge obtained by completing an academic course of study resulting in a four-year college degree or leading to certification? u u u 3. Is the employee paid the equivalent of at least $455 per week on a salary basis? u u u If you answered “No” to any of these questions, the employee may be misclassified as an exempt learned professional. Exception: Those who’ve completed the educational requirements for a law or medical degree need not meet the minimum salary requirement. Also, teachers need not be certified or meet the minimum salary requirement to qualify as learned professionals. s Creative Professional Employee Answer the following to determine whether a worker is misclassified as an exempt creative professional: Don’t Yes No Know 1. Is the employee’s primary duty to perform work requiring invention, originality or talent in a recognized field of artistic endeavor such as music, writing, acting and the graphic arts? u u u 2. Does the work require more than intelligence, diligence and accuracy (i.e., does it require “talent”)? u u u
- 19. (800) 433-0622 www.theHRSpecialist.com s Creative Professional Employee (continued) Don’t Yes No Know 3. Is the employee paid the equivalent of at least $455 per week on a salary basis? u u u If you answered “No” to these questions, you may have misclassified a worker as an exempt creative professional. s Computer Professional Answer the following to determine whether a worker is misclassified as an exempt computer professional: Don’t Yes No Know 1. Is the employee paid at least $455 per week on a salary or fee basis or, if paid hourly, at a rate of not less than $27.63 per hour? u u u 2. Is the employee’s primary duty: • Application of system analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; or u u u • Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or u u u • Design, testing, documentation, creation or modification of computer programs related to machine operating systems; or u u u • A combination of the aforementioned duties requiring the same level of skills? u u u If you answered “No” to #1 or were unable to answer “Yes” to any parts under #2, you may have misclassified the worker as an exempt computer professional. s Outside Sales Employee To determine whether a worker has been misclassified as an exempt outside sales employee, answer the following questions: Don’t Yes No Know 1. Is the worker’s primary duty making outside sales? u u u 2. Does he regularly work away from the company’s place of business? u u u 3. Does the worker sell tangible or intangible items, such as goods, insurance, stocks, bonds or real estate, or obtain orders or contracts for services or the use of facilities? u u u If you answered “No” to any of these questions, you may have misclassified the worker as an exempt outside sales employee.
- 20. THANK YOU! Stacy Johnson, SPHR, SHRM-SCP Direct: 202-955-6733 E-mail: sjohnson@raffa.com QUESTIONS?