FAIR LABOR STANDARDS ACT(FLSA):

IMPLICATIONS OF 2016 REGULATIONS

June 14, 2016 Presented by:

Sandi P. Tarski starski@wabsa.c

om 512-454-6864

 

Alexander S. Berk

aberk@wabsa.com

214-574-8800  

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FLSA BASICS

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Overview

Ø Enacted by Congress in 1938 in response to the Great Depression

Ø Sets requirements for minimum wages, overtime pay, equal pay, record-keeping and child labor standards for covered employees

Ø Distinguishes between Exempt and Non-Exempt employees

Ø Regulations have been modified rarely since 1938 •  Current regulations in effect: 2004 Amendments •  New regulations: take effect December 1, 2016 3  

Exempt vs. Non-Exempt Employees

Ø Exempt employees •  Work on salary basis •  No necessity for hourly record keeping •  Not entitled to overtime pay

Ø Non-Exempt employees •  Must be paid at least minimum wage ($7.25/hour)

•  Entitled to overtime pay of “one and one-half” times an employee’s regular rate of pay for hours worked over 40 in a week

Ø All employees should be treated as Non-Exempt unless they qualify for an exemption under the FLSA. 4  

Qualification for Exemption

There is a three part test to determine whether an employee is Exempt:

1.  Salary Basis

•  Predetermined, fixed and not subject to reduction because of variations in the quality or quantity of work performed.

2.  Salary Level Test

•  The salary amount must meet a minimum specified amount

3.  Duties Tests

•  Three primary tests: Executive, Administrative, Professional

•  Highly Compensated Employees (HCEs)

•  Computer Workers (CWs) 5  

Important Note

Setting a flat salary, giving an employee a certain title, or offering a contract alone will not change the employee’s status under the FLSA.

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3 PART TEST TO DETERMINE EXEMPTION

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Part One: Salary Basis Test

Predetermined, fixed and not subject to reduction because of variations in the quality or quantity of work performed.

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Part Two: Salary Level Test (current vs. new)

Ø Current Regulations: •  The employee must be paid at least $455.00/weekly,

which amounts to $23,660 annually based on a 12-month work year, excluding lodging, board, and other benefits

Ø New Regulations: •  The employee must be paid at least $913.00/weekly,

which amounts to $47,476 annually based on a 12-month work year, excluding lodging, board, or other benefits.

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Salary Level Test – Why the Change?

Ø The effectiveness of the salary level test to determine Exempt status diminishes over time as the wages of employees increase.

Ø The change accounts for lower salaries paid in certain regions. The new amount is set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage census region (the South)

Ø The minimum salary threshold will be automatically updated every 3 years, with the first update January 1, 2020.

Ø New regulations allow nondiscretionary bonuses, incentives and commissions to count toward up to 10% of the salary level.

Ø This test is not applicable to teachers or academic administrators, both of which remain Exempt.

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Calculating Weekly Rate of Pay

Ø Step 1: Determine employee’s salary Ø Step 2: Determine how many weeks the

employee works Ø Step 3: Divide the salary by the number of

weeks worked = the employees weekly rate of pay

Ø Step 4: Less than $913.00/week = Non-Exempt; Greater than $913.00/week = Exempt  

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Part Three: Duties Test

Ø If employee does not meet the salary test, the employee is Non-Exempt.

Ø If the employee meets the salary test, move on to the Duties Test.

Ø There is no change to the Executive, Administrator or Professional Duties Tests in the new regulations.

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Duties Test – Executive Test 1.  The employee must have the primary duty of

the management of the enterprise in which the employee is employed or o f a customarily-recognized department or subdivision thereof;

2.  The employee must customarily and regularly direct the work of two or more other employees; and

3.  The employee must have the authority to hire or fire other employees or be one whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.  

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Duties Test – Administrator Test

1.  Must perform administrative duties. Two part inquiry examines:

•  Type of work the employee performs; and

•  Level or nature of work performed.

2.  The employee must have a primary duty of performance of office or non-manual work directly related to management or general business operations of the employer or the employer’s customers; and

3.  The employee’s primary duty includes the exercise of discretion and independent judgment wi th respect to mat ters o f significance. 14  

Duties Test – Professional Test 1.  The employee must have the primary duty of the

performance of work:

•  Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (learned professional)

•  Law, medicine, theology, accounting, engineering, teaching, and the physical, chemical and biological sciences.

•  Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor (creative professional).

2.  The work being performed must require knowledge of an advanced type.

•  NOTE: If the employee has an advanced degree but the work does not require that level of education, the employee will not qualify for the exemption.

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IMPACT OF NEW REGULATIONS

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Positions of Interest Not Impacted by New Regulations

Ø Teachers, Substitutes

•  Primary duty is teaching, tutoring, instructing, lecturing, imparting knowledge.

•  These positions are Exempt from the overtime rule and therefore not eligible for overtime compensation

Ø Teachers/Coaches

•  Teachers who also coach are Exempt from the overtime rule and therefore not eligible for overtime compensation.

•  Coaching is considered to be part of a schools’ responsibility to contributing to the educational development of students

Ø The above positions remain Exempt and do not require application of the salary level test 17  

Positions of Interest Not Impacted by New Regulations  

Ø Academic Administrators •  Superintendents, Assistant Superintendents, Principals, APs,

Academic Counselors, Librarians

•  These positions are Exempt from the overtime rule and therefore not eligible for overtime compensation.

•  To be Exempt, an academic administrator must:

o Be compensated on a salary or fee basis of at least $913.00/week or on a salary basis that is at least at the entry level salary for teachers in the same educational establishment; and,

o Have a primary duty of performing administrative functions directly related to academic instruction or training in an educational establishment, department or subdivision

Ø In-House Legal Counsel •  This position is Exempt from the overtime rule and therefore not

eligible for overtime compensation. 18  

Other Positions of Interest

Ø Aides, Paraprofessionals, Maintenance, Custodial, Food Service Workers, Secretaries, Payroll Clerks, Bus Drivers, Bus Monitors, Bookkeepers •  Generally, Non-Exempt employees.

•  If an employee does meet the salary-level test, then a determination should be made to see whether the employee meets either the Executive, Administrator or Professional duties tests.

•  Keep an eye on the salaries and duties for directors, managers, supervisors, and the like.

•  Keep an eye on administrators who are not performing functions directly related to academic instruction.

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Other Positions of Interest  Ø Nurses •  Exempt: Registered nurses (RNs) on salary who earn

$913.00/week are Exempt employees.

•  Non-Exempt:

•  Paid on an hourly-basis

•  Licensed vocational nurses (LVNs) and licensed practical nurses are Non-Exempt employees under most circumstances.

Ø Police Officers

•  4 or less officers: Total exemption •  5 or more officers: Partial exemption •  Complex regulations regarding determining hours worked

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Other Positions of Interest – Highly Compensated Employees

(HCEs) Ø HCEs are Exempt from overtime compensation so long

as they meet the following 3 part test:

1.  Meet the salary-level test specific to HCEs

•  Current Regulations: $100,000 annual salary

•  New Regulations: $134,004 annual salary

•  Set at the 90th percentile of earnings of full-time salaried workers nationally.

2.  The employee must customarily and regularly perform any one or more of the Exempt duties or responsibilities of an executive, administrative, or professional employee; and

3.  The employee must perform office or non-manual work.

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Other Positions of Interest – Computer Workers (CWs)

Ø CWs include computer systems analysts, programmers, software engineers and other similarly skilled workers in the computer field

Ø Must meet salary level test

Ø May be Exempt under any of the tests as bona fide Executive, Administrative, or Professional employees

Ø If not, CWs are likely still eligible for exemption as professionals given the work performed and specialized skills needed therein 22  

School District Employees/Positions Likely Impacted

Ø Employees who are currently Exempt and make between $455.00/week and $913.00/week (new salary level test)

Ø Positions that may be impacted (non-exhaustive list): •  Finance

•  Maintenance

•  Operations

•  Directors

•  Executive Directors

•  Other administrators who do not earn over $913.00/week

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Summary of Key Changes in the New Regulations

Ø All employers must be in compliance by December 1, 2016.

Ø Teachers and academic administrators remain classified as Exempt.

Ø Minimum salary threshold has been raised to $913.00/week, amounting to $47,476/year.

Ø Minimum salary threshold for highly compensated employees has been raised to $134,004/year.

Ø Minimum salary threshold will be changed every three years, with a firm January 1 date beginning January 1, 2020.

Ø There is no change to the “duties” tests. 24  

WHERE DO WE GO FROM HERE?

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Step 1: Audit all of your currently Exempt employees.

Step 2: Determine the weekly rate and annual salaries of those employees.

Step 3: Identify all Exempt employees who earn less the $913.00/week as they will now be Non-Exempt and subject to overtime compensation. 26  

Step 4: Identify how you will address employees who will now be non-Exempt. Options to Consider:

•  Raise salaries to meet the $913.00/week salary threshold in order for these employees to remain Exempt. Remember: to be Exempt, these employees must still meet one or more of the duties tests.

•  Treat these employees as Non-Exempt and subject to overtime compensation.

•  Reduce/eliminate Overtime.

•  Reallocate/assign duties.

• Consider Use of Comp time. 27  

Step 5: Evaluate Record Keeping Processes / Procedures.

Step 6: Budget accordingly.

Step 7: Consider budget for future changes.

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Hypotheticals Ø Elementary school teacher who earns 40,000

annual salary? • No change!

•  Teachers are Exempt from overtime compensation.

Ø A currently Exempt Director who earns $40,000 annual salary and works 44 weeks? • Determine weekly rate of pay.

•  $40,000.00 / 44 = $909.09

•  Because the new salary level threshold to be Exempt is $913.00/week, the Director will now be a Non-Exempt employee.

• Options: Raise the salary or identify the Director as Non-Exempt.

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Hypotheticals  Ø A paraprofessional who earns $913.00/week? •  No change!

•  Even though the paraprofessional will meet the new salary level test, he or she will not meet any of the duties tests. Therefore, the paraprofessional will be Non-Exempt and eligible for overtime compensation.

Ø A currently Exempt IT employee who earns $45,000 annual salary and works 44 weeks? •  Determine weekly rate of pay

•  $45,000.00 / 44 = $1,022.72

•  Because the IT employee earns at least $913.00/week, he/she is still Exempt.

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Communication and Overtime

Ø Communication with new Non-Exempt employees as it pertains to duties and responsibilities regarding compliance with hours to be worked will be crucial.

Ø Under the FLSA, overtime must be authorized. •  BUT, an Employee who works beyond 40 hours without

authorization must still be compensated.

•  Require use of a time clock or other means of documenting hour worked.

•  Duty is on Employer to adequately record time worked.

Ø It is the responsibility of administration to ensure work over 40 hours is not performed.

Ø Clear direction is vital.

Ø While an Employee is to be compensated for unauthorized overtime work performed, the Employee may be disciplined for performing such unauthorized work.

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Why Compliance is Important

Ø What can result from noncompliance? •  DOL Investigation •  DOL Lawsuit •  Lawsuit by Employee / Former Employee

Ø Possible Damages: •  Up to 2 years of back wages for overtime •  For willful violations, court may award up to 3 years back

wages for overtime •  Court may order liquidated damages in the amount double

the back pay if there is a willful violations •  Court penalties •  Attorney Fees

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FAIR LABOR STANDARDS ACT(FLSA):

IMPLICATIONS OF 2016 REGULATIONS

June 14, 2016 Presented by:

Sandi P. Tarski starski@wabsa.c

om 512-454-6864

 

Alexander S. Berk

aberk@wabsa.com

214-574-8800  

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