IL ESOP 2016 Fair Labor Standards Act Regulations

Implementing the new Fair Labor Standards Act Regulations

ILLINOIS ESOP CONFERENCE – CHAMPAIGN -MARCH 10, 2016

2Today’s Panel

David S. HorvathCrowe Horwath LLP

Tel 630.586.5117

David.Horvath@crowehorwath.com

.

Laura B. FriedelLevenfeld Pearlstein. LLCTel 312.476.7510lfriedel@lplegal.com

3Proposed FLSA Overtime Regulations

Announced July 6, 2015 1st update to regulations since August 2004 Public comment period closed on September 4th Expect final regulations in 2016… likely Likely will take effect 30-60 days after published

4FLSA Overtime RegulationsExempt status requirements reminder…..

Currently, to be exempt under the White Collar (Administrative, Executive, Professional) Exemptions the employee MUST:1. Be paid on a salary basis;2. Receive guaranteed salary (or other guaranteed pay) of at least

$455/week ($23,660/year); AND3. Meet the job duties test.

The proposed regulations only change #2….

5What Tasks are “Exempt”?

What tasks are recognized as exempt? Administrative Executive Professional

What tasks are recognized as nonexempt?

KEY = PRIMARY DUTY

It appears that the Duties Tests will remain unchanged but the regulations change the salary threshold requirement.

6Final FLSA Exemption Revisions To Be Issued Soon

June 29, 2015: The Wage and Hour Division of the Department of Labor issues the Proposed Rule and Request for Comments: 29 CFR Part 541 RIN 1235 – AA11: Defining and Delimiting the

Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees Sixty day comment period Proposed drastic increase in minimum salary for White Collar exemptions. Did not include any changes to job duties tests, but left door open.

7What Do the Proposed Regulations Change?

New proposed minimum guaranteed pay: NPRM suggests $970 per week ($50,440 per year)

40th Percentile of full time salaried employees, nationwide Prediction for final is based on anticipated Q2 2015 – Q1 2016 data. With delay, it will

likely be higher. NPRM also increases threshold for Highly Compensated Employee exception –

but doesn’t apply in Illinois Annual increases

Two possible methods for annual increases: Fixed percentile of salaried employees

40th percentile for given year (90th for Highly Compensated) CPI-U

8Response to Proposed Regulations

September 4, 2015: Comment period officially ends. Published comments address the following issues:

High cost to non-metro areas of the country and the built-in inflation factor with 40th percentile of weekly earnings factor; and

It is projected that 122 million workers will be affected by the salary threshold increase but less than 1% of them will receive salary raises to the new threshold

This accentuates the concerns around reclassifying exempt to non-exempt and controlling OT costs

Since late October → mixed messages about timing of final regulations

9Proposed FSLA Overtime Regulations

Steps to take in anticipation of new regulations: Identify exempt employees making salary <$52k/year Identify commissioned exempt employees making guaranteed pay <$52k/year Weigh financial and cultural impact of pay increase vs transition to non-exempt Consider using change in regulations as opening to change status of

questionably-classified employees Consider how you will annually assess whether minimum salary is satisfied

10Specific Application to Your Organization

Key Questions:1. Which positions currently have incumbents who are considered exempt paid below

the expected new minimum salary threshold?2. Which major option do you select?

Automatically raise the exempt incumbents’ salaries to the new minimum (option 1)

Reclassify employees to non-exempt (option 2) 3. What are the consequences for each option?

Which option would cost more? Which option has greater risk? How best do we make and implement this decision?

11Communication is Vital

Critical conversations addressing undesired change

Consistent conversations to maintain accuracy and policy compliance

Prepared communications to ensure quality messaging

FAQs and a single source as the point of contact for questions.

12FAQs that may apply to your organization

Why is my position being reclassified? What do these changes mean to me? Is this a demotion? How do I record my time? How is overtime calculated? When will I begin receiving overtime pay? My job hasn’t changed, if I’m getting overtime now,

shouldn’t I always have gotten it?

13FAQs continued

How does this reclassification impact my benefits? How does this impact my bonus or incentive

compensation? Who can I talk to about my follow-up questions? Will I receive less pay? Can I work as much overtime as I want (or as I usually

do)? What if I want comp time instead of overtime pay?

14Other Questions/Concerns That May Arise?

Will I receive back pay for the extra hours I’ve worked in the past (i.e. week, month, year…)?

How will this change be communicated to my peers, direct reports, and/or the company in general?

How will this affect my career aspirations at this organization?

15Considerations for Companies

Identify those currently exempt employees below the salary threshold

Analyze the cost of options including raising salary to new threshold or paying overtime premiums

Consider non-financial implications affecting employees Consider impact on retirement plans, incentive compensation

and bonuses Formulate a compliance, communications and implementation

strategy