dol’s final rule regarding salary levels for exempt...

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DOL’s Final Rule Regarding Salary Levels for Exempt Employees

PRESENTED BY

Jim Coleman

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Agenda

I.  Background

II.  The Final Rule: Changes Made to the Salary Requirements for Exempt Status Under the FLSA

III.  Preparing for Implementation

IV.  Review Timekeeping Procedures

V.  Legal Attempts to Stop Regulations From Being Implemented

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Part I: Background

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• Minimum wage for all hours worked

• Overtime pay at time and one-half for all hours worked over 40 in a single workweek

What the Fair Labor Standards Act Requires

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BUT WAIT!

Certain employees are exempt from the minimum wage and overtime requirements!

What the Fair Labor Standards Act Requires

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•  Executive

• Administrative

• Professional

• Outside Sales

However, Congress did not define certain terms…

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• Department of Labor has issued regulations defining the scope of the Section 13(a)(1) exemptions

•  These regulations cannot be set aside unless the Secretary exceeds his authority, or if the regulations are “arbitrary, capricious, or an abuse of discretion”

Part 541 Regulations

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•  The exempt employee must receive a certain minimum salary

•  The exempt employee must be paid on a salary basis

•  The exempt employee must meet certain tests regarding their job duties

DOL Established Three Basic Tests to Qualify for the White Collar Exemptions

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“I direct the [DOL] to propose revisions to modernize and streamline the existing overtime regulations.” President Obama MARCH 13, 2014

Changes on the Horizon

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Proposed Revisions to White Collar Regulations

•  Issued in June 2015 •  Standard minimum annual salary will be increased

to $50,440

•  Highly compensated employee annual compensation will be increased to $122,000 (based on 2013 data)

• Both numbers will be indexed to a cost of living mechanism

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Part II: The Final Rule

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Final Rule’s Key Provisions

•  Standard minimum salary increased to $913 per week or $47,476 annually

•  HCE annual compensation increased to $134,004 •  Established a mechanism for automatically updating

the salary and compensation levels every three years •  Amended the salary basis test to allow employers

to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level

•  No changes to the duties tests

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Highly Compensated Employees

•  $134,004 total annual compensation; $913 salary per week required

•  Up from the current $100,000

•  Up from the DOL’s proposed $122,000, but based on more current data

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Bonuses and Commissions

• Nondiscretionary bonuses, incentive payments and commissions, paid at least quarterly, can satisfy up to 10 % of the minimum salary requirement

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Automatic Increases

•  The salary and compensation levels will automatically increase every three years, using the same methodology for increases that was used to set the salary and compensation levels in the first instance.

•  40% level in lowest wage census region for standard salary

•  90% level of national salaried earnings for HCE compensation

•  The first salary increase will occur on January 1, 2020.

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Effective Date

December 1, 2016

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Part III: Preparing for Implementation

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Addressing Increased Salary Requirements

• Review all exempt employees whose salaries are below $47,476

• Decide whether or not to reclassify as non-exempt

• Decide how to compensate for overtime

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Cost-Neutral Solution for Reclassification

WEEKLY SALARY/(40 + (OT HOURS X 1.5))

•  If you have a good estimate of expected weekly work hours, applying this formula will provide an hourly rate which will result in approximately the same weekly and annual compensation

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Example of Cost-Neutral Solution

Weekly Salary: $800 Regularly Weekly Overtime Worked: 10 hours

COST NEUTRAL METHOD OF DETERMING REGLULAR RATE $800/(40 + (10 X 1.5) $800/(40 + 15) $800/55 = $14.55

$14.55 X 40 = $582.00 $14.55 X 1.5 X 10 = $218.25 TOTAL $800.25

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Another Issue Involved in Reclassifying Employees from Exempt to Nonexempt

Calculating an Overtime Rate for

Salaried Employees

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Calculating an Overtime Rate

• Do you divide weekly salary by 40?

• Do you use the fluctuating workweek method?

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Example No. 1

WEEKLY SALARY: $800 WEEKLY HOURS WORKED: 50 Hours

Determining overtime due:

METHOD NO. 1: Assume salary was for 40 hours.

OT Due = $800/40 = $20 x 1.5 x 10 = $300

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Example No. 2

WEEKLY SALARY: $800 WEEKLY HOURS WORKED: 50 Hours Determining overtime due:

METHOD NO. 2: Fluctuating Workweek – salary was for all hours worked.

OT Due = $800/50 = $16 x .5 x 10 = $80

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Fluctuating Workweek Requirements

• A “clear mutual understanding of the parties”

•  “that the fixed salary is compensation (apart from OT due) for the hours worked each workweek, whatever their number, rather than for working 40 hours”

• No requirement that the understanding be in writing, but it is recommended as best practice

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Fluctuating Workweek Requirements

• DOL enforcement position is that no other compensation can be paid other than weekly salary and any required overtime premium

• Cannot deduct from or reduce weekly salary in weeks where employee works less than 40 hours

• Must check state law compliance

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Capitalize on Opportunity to Review Duties of All Exempt Employees

• Attempt to conduct under the attorney-client privilege

• Review job descriptions, performance evaluations, training materials

•  Interview senior managers

• Conduct legal analysis to determine if job duties qualify for an exemption

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Part IV: Review Timekeeping Procedures

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Keeping Track of Hours Worked

•  Employees not used to clocking in/out

• May not record all hours worked

•  Problem areas •  Before/after work •  Lunch periods •  Work at home •  Emails, texts, cell phone

calls •  Travel time

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Training Regarding Timekeeping

•  Train managers of reclassified employees regarding the need to record all time worked, and what that includes

•  Train the reclassified employees in timekeeping procedures and the need to record all time worked, and what that includes

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Part V: Legal Attempts to Stop Regulations

From Being Implemented

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A New President Will Be Elected in Nov. 2016

•  Incoming Republican administration could restart the regulatory process in January 2017

•  Difficult to “walk back” from salary level increases

•  More likely to limit or eliminate automatic salary increases

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The Bottom Line

• New rules are not going away • Determine exempt/non-exempt status of

individuals • Decide how to pay reclassified exempt

employees

Dec. 1st will be here soon. Don’t wait – start now!

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Questions?

jcoleman@constangy.com 571-522-6111