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Copyright © 2016 ADP, LLC2
In this session, we will review several topics:§ FLSA’s White Collar Exemptions
§ Final Rule
§ Action Items
§ How ADP Can Help
§ Paid Sick Leave
§ Pay Statement Compliance
§ Pay Transparency
§ Current Trends
Session Agenda
Copyright © 2016 ADP, LLC3
This presentation is not:§ Legal Advice§ A Political Opinion
ADP DOES NOT PRACTICE LAW OR GIVE LEGAL ADVICE
ADP STRONGLY RECOMMENDS THAT CLIENTS OBTAIN QUALIFIED LEGAL COUNSELPRIOR TO MAKING ANY DECISIONS
Disclaimer
Copyright © 2016 ADP, LLC5
The Fair Labor Standards ActBackground
June 25, 1938, theFLSA was passed to:
• Guarantee a minimum wage• Limit the number of hours an employee can work without
additional compensation• Sets the overtime pay rate at not less than 1.5 x
employee’s regular rate for hours worked over 40 in aworkweek
Section 13(a)(1) ofthe FLSA:
• Excludes certain white collar employees from minimumwage and overtime pay protections
• Was included in the original Act – but no definitions.• Definitions - with TESTS – added by REGULATION
Why are thereExemptions?
• Belief that these workers earned salaries well aboveminimum wage and
• Enjoyed other privileges setting them apart from workersentitled to overtime
Copyright © 2016 ADP, LLC6
What is The Fair Labor Standards Act (FLSA)?
Sets theminimum
wage,compensable
time andovertime
requirements
Exemptionsfrom overtimerequirements
Requiredrecordkeepingby employers
Restrictions onthe type of
work childrencan do and thehours they can
work
All employers must be aware not only of the FLSA, but of the state wage-hour laws and municipal pay ordinances. In addition, international labor
standards, and foreign labor laws impact global employers
Mandatesequal pay forequal work
F L S A C o v e r s
Copyright © 2016 ADP, LLC
Fair Labor Standards Act Back Wages FY 2015 Statistics
*Duplicated employee count: One employee can have multiple violations
http://www.dol.gov/whd/statistics/statstables.htm
Minimum Wage• Violation Cases = 10,642• Back wages = $37,828,554• % of FLSA back wages = 22%• Employees receiving back wages* = 86,229• % of employees receiving FLSA back wages = 39%
Overtime• Violation Cases = 10,496• Back wages = $137,701,703• % of FLSA back wages = 78%• Employees receiving back wages* = 173,330• % of employees receiving FLSA back wages = 78%
Wage and hour litigation is outpacing all other types of class action suits
Over 90% of all State and Federal class action lawsuits are related to wage and hour.
Non-complianceleads to DOLaudits, fines,
awards, lawsuits,and defending
actions
Copyright © 2016 ADP, LLC8
The Rulemaking Process
March 2014, Memorandum: President Obama directsSecretary of Labor Perez to revise the overtime regulations
Summer 2014, Secretary Perez held “listening sessions” withstakeholders
July 6, 2015, Wage & Hour Administrator Weil issues theNPRM, proposing changes to the Part 541 regulations.
September 4, 2015, the comment period closed after nearly300,000 comments were filed, a DOL record
March 14, 2016, DOL sends Final Rule to White House Officeof Management & Budget for review
May 18, 2016, DOL publishes the Final Rule with an effectivedate of December 1, 2016
Copyright © 2016 ADP, LLC
White Collar Exemptions
• Primary duty must be managing the enterprise and must customarily and regularly direct the work of at least twoor more other full-time employees
Executive Exemption
• Primary duty must be performance of non-manual work directly related to the management or general businessoperations and includes the exercise of discretion and independent judgment with respect to matters ofsignificance
Administrative Exemption
• Primary duty must be the performance of work requiring advanced knowledge, defined as work which ispredominantly intellectual in character and is in a field of sciences or learning, acquired by a prolonged course ofspecialized intellectual instruction
Professional Exemption
• Must be employed as a computer systems analyst, computer programmer, software engineer or other similarlyskilled worker in the computer field
Computer Employee Exemption
• Primary duty must be making sales or obtaining orders or contracts for services; the employee must becustomarily and regularly engaged away from the employer’s place of business. The FLSA’s salary requirementsdo not apply.
Outside Sales Exemption
DOL Website: https://www.dol.gov/whd/overtime/fs17a_overview.pdf
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Copyright © 2016 ADP, LLC10
What is NOT Changing
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No changes to thesalary basis test (anemployee regularlyreceives apredeterminedamount ofcompensation eachpay period on aweekly, or lessfrequent, basis.)
No changes thatimpact outsidesales, teachers,
lawyers or doctors
No changes to theduties tests• No changes in the
definition of primaryduty
• No changes to theconcurrent dutiesprovision
Copyright © 2016 ADP, LLC11
What is Changing: Minimum Salary Level
$913 per week ($47,476annualized)• Up from the current $455 per week
($23,660 annualized)• Down from DOL’s proposed $50,440• Set at the 40th percentile of full-time non-
hourly paid employees in the lowest wageCensus region (South)
Copyright © 2016 ADP, LLC12
What is Changing: Bonuses and Commissions
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Nondiscretionary bonuses,incentive payments andcommissions, paid at leastquarterly, can satisfy up to 10percent of the minimum salaryrequirement
Copyright © 2016 ADP, LLC13
What is Changing: Highly Compensated Employees
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$134,004 total annualcompensation• Up from the current $100,000• Up from DOL’s proposed $122,000• Set at the 90th percentile of full-time
non-hourly paid employees nationwide
Copyright © 2016 ADP, LLC14
What is Changing: Automatic Increases
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The salary levels willautomatically increase every3 years, beginning January 1,2020
Copyright © 2016 ADP, LLC
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Projected Impact
Year 1:
New Rule will extend overtimeprotections to nearly 4.2 million whitecollar workers
65,000 HCE workers impacted
Year 10:
Average transfers of income fromemployers to employees over first 10years are estimated to be approximately$1.2 billion per year
Average annualized direct employercosts will total approximately $295million per year over the first ten years
Copyright © 2016 ADP, LLC
Misclassification of employees and Wage andHour Compliance
Due to the sometimes ambiguous nature ofemployee classification as exempt or nonexempt,many employers struggle with properly classifyingtheir employees under FLSA guidelines. Under thenew rules, this challenge is likely going to behighlighted for many employers who will have toreconsider the classification of their exemptemployees whose salaries fall below the newminimum threshold.
4.2 Million
The DOL estimatesthat as many as
workers may need to bereclassified as a result of theFLSA rule change.
70%
The DOL estimatesthat as many as
of employers are notin full compliancewith the FLSA.
What challenges do employers face?
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Copyright © 2016 ADP, LLC
Properly tracking, calculating and paying employee overtimecan be a challenge for many employers.With over an additional four million employees expected to beeligible for overtime, the need for proper tracking, calculatingand paying of employee overtime is greater than ever.
Overtime Tracking Challenges:• Properly tracking hours and calculating overtime• Anticipating overtime before it happens• Visibility into total hours worked• Understanding the impact of unplanned and planned absences• Employees requesting and managers approving overtime• Minimizing or avoiding overtime when scheduling• Reporting on overtime
ØAuditing the history• Knowing how much overtime is worked by those that do and
do not currently record time
$6.9 Million*
The average Wage& Hour casesettlement is
90%*
of cases thatresulted in backwages being paidincluded overtime
*Source: NERAEconomicConsulting, Trendsin Wage and HourSettlements, July14, 2015.
What challenges do employers face?
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Copyright © 2016 ADP, LLC20
• Determine Who in Your Workforce is Impacted– Perform Financial Impact Analysis– Use Custom ADP Reports
• Perform an HCM/Cultural Impact Analysis– Will new policies need to be drafted to keep new non-exempt employees with same PTO,
telecommuting etc.– Are benefits impacted?– New timecards, additional clocks?
• Make October 15th your organization’s communication deadline– Wage Payment Notification Laws (one pay period advance notice)– Be transparent and detailed (Tell impacted employees how a reclassification will impact
them; i.e. punch clocks, sign-off on policies, adjusted pay schedule, STD, benefits, PTO, etc.)
Compliance Recommendations
Copyright © 2016 ADP, LLC
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Call to Action – FINANCIAL IMPACT
Perform a FINANCIAL IMPACT Analysis of Workforce*
Who is earning less than $47,476?
• Should you INCREASE SALARY to maintain exempt status? OR• Should you MAINTAIN SALARY, and RECLASSIFY as non-exempt?
• Overtime Pay?• Hire new FTEs in that position?
Cost Comparison - Should I increase salary orre-classify?
*Remember, states have their own thresholds
Copyright © 2016 ADP, LLC
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Call to Action – HCM IMPACTPerform an HCM IMPACT Analysis
• Processes?• Punching in/out; Restrictions; Enforcing policies
• Policies?• PTO; Mobile Devices; Bonuses
How will Re-Classified Employees be Impacted?
• Who will communicate the changes?• What will be communicated?• When will the communications be made?• Talking Points and FAQs
What should I “say” to impacted employees?
Copyright © 2016 ADP, LLC
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Call to Action – OPPORTUNITY TO REVIEW
• Independent Contractor Misclassification• Overtime Misclassification• Deductions from Exempt Salary• Automatic Meal Break Deductions• Paying by Shift or Exception• Pre- and Post-Shift Activities• Meeting and Training Time• Travel Time• Shift Differentials and Other “Extras”• Bonuses and Commissions for Non-Exempt Employees
Copyright © 2016 ADP, LLC
Client Benefits – TechnologyBuilt just for New FLSA White Collar ExemptionsTo evaluate the impact of the FLSA changes, two new sample reportswere created;• FLSA Salary Threshold Worksheet• FLSA Cost Comparison Worksheet
WFN Current version:Reports > Custom Reports > Sample Reports
WFN V2:Custom Reporting > Run > Run Reports >Run Standard and Sample Reports
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Copyright © 2016 ADP, LLC
Client Benefits – TechnologySalary Threshold Worksheet
• Overtime Exemption Threshold is entered at the time the report is run and has been pre-set to $47,476, basedon the threshold established by the DOL.
• Clients have the option to change this to a different value, for purposes of projecting the impact of futureincreases to the threshold.
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Copyright © 2016 ADP, LLC
Overtime Exemption Threshold is entered at the time the report is run and has been pre-set to $47,476, basedon the threshold established by the DOL.
Important note:The projections and calculations in the FLSA Cost Comparison Worksheet only consider DOL’s minimum salary threshold toqualify for exemption from the FLSA overtime requirements as an executive, administrative, professional or computeremployee. The primary duties tests are not taken into consideration.
Client Benefit – TechnologyCost Comparison Worksheet• Enables clients to compare options and identify which is a lower cost:
a) increase employee’s salary above threshold and maintain exempt status; orb) maintain employee’s current salary, reclassify as non-exempt and possibly pay overtime
• Projected Lower Cost Option is determined by comparing– Amount to Reach Threshold– Projected Annual OT Pay
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Copyright © 2016 ADP, LLC
Client Benefits – TechnologyExisting Mass Change FunctionalityClients can use Workforce Now Mass Change functionality to quickly andeasily make changes to multiple employees at the same time• Increase salaries (to maintain exemption)• Change FLSA status of certain Job Titles
WFN V2: Payroll > Employee > Employee Tasks > Mass ChangeWFN current version: Process > HR > Mass Change
Copyright © 2016 ADP, LLC
Client Benefits – TechnologyMore Enhancements! Value-AddInteractive FLSA Dashboard Coming Soon!
– Default Alerts• “You have X # of clients classified as exempt who are close to the minimum
threshold.” Employer will want to consider whether they may need to bereclassified soon or their salary should be increased to maintain exemption.
– Custom Alerts• “You have Y # of employees classified as non-exempt who are close to the
minimum threshold.” Employer will want to consider their job duties, perhapsby giving a merit increase they will be close to threshold. If so – and if meetexempt duties – you may consider reclassifying them as exempt (no moreovertime…what will that mean to your bottom line?)
– More to Come!
Note: This functionality is being built, and will be in WFN in the near future. We make norepresentation as to exactly when it will be released or as to its exact functionality as it issubject to change.
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Copyright © 2016 ADP, LLC
How can ADP help?FLSA Readiness Review
Overview: Provides WFN technology clients the opportunity to partner with an HCM Consultant tohelp assess the organization’s readiness for FLSA Compliance and develop a strategy for compliance.
Delivered: Virtually as a series of customized, interactive webinars; defined engagement– One-hour Preparatory call using questionnaire as a guide– Two-hour customized session– One-hour wrap up call
Objective: Help clients prepare to comply with the new FLSA Overtime Rule effective 12/1/2016and ensure there is a well-defined strategy and communication plan in place.
IMPORTANT: This offering does not include exemption status determinations for jobs as this wouldbe construed as legal advice.
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Copyright © 2016 ADP, LLC
Summary Description – FLSA Readiness ReviewOffering Component Description Benefit
Preparatory Call HCM meets with client for one (1) hour toreview FLSA areas of concerns and confirmclient-specific needs.
Ensures client’s “Main Session” is properlycustomized based on the client’s needs.
Regulatory Overview HCM reviews the key provisions of the FLSAFinal Overtime Rule. Information can bepersonalized based on clients’ needs andcurrent understanding.
Ensures client is fully educated on theregulation, providing a good foundationfrom which to make decisions.
WFN Capabilities Review HCM reviews system prior to “Main Session”and then discusses how WFN may need to beupdated based on the regulatory changes andclient’s chosen approach.
Client gains greater knowledge regarding allpotential updates needed in WFN.
WFN Custom Reports HCM runs FLSA Threshold and Cost Comparisonreports and analyzes and highlights potentialareas of concern.
Assists clients that may have bandwidthissues with preparatory analysis ofsalary/FLSA data in WFN.
Communication Plan Detailed plan of communication includingimpacted parties, key messages, methodology,and talking points.
Provides client with an organizationalcommunication plan outline, so they maytake a proactive approach.
Project Plan Detailed plan of action steps, responsibleparties, due dates, etc.
Provides action plan template, enablingclient to more easily formalize FLSAReadiness Strategy; ensures key steps arenot missed.
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Copyright © 2016 ADP, LLC34
States
• California (July 1, 2015)
• Connecticut (January 1, 2012)
• Massachusetts (July 1, 2015)
• Oregon (January 1, 2016)
• Vermont (January 1, 2017)
• Illinois (January 1, 2017 – awaiting IL DOL rules)
Municipalities
• California – Emeryville, Long Beach, Los Angeles, Oakland, San Diego*, San Francisco, Berkeley (October 1,2017)
• District of Columbia (D.C.)
• Louisiana – New Orleans (city contractors and grant recipients only) (January 2016)
• Maryland - Montgomery County (October 2016)
• New Jersey – Bloomfield, East Orange, Elizabeth, Irvington, Jersey City, Montclair, Newark, Passaic, Paterson,Plainfield (March 2016), Trenton, New Brunswick
• New York – New York City
• Oregon – Eugene (January 2016), Portland
• Pennsylvania – Philadelphia
• Washington – Seattle, Tacoma (February 2016), Spokane (January 1, 2017)
• Minnesota – Minneapolis (July 1, 2017), St. Paul (July 1, 2017)
• Illinois – Chicago (July 1, 2017)
Paid Sick Leave
Copyright © 2016 ADP, LLC35
Potential payroll impact – pay statement requirements
• California –requires the balance of paid sick leave available to bedisplayed on an employee’s pay statement or a separate writingissued on the employee’s designated pay date
• Oregon –requires amount of paid sick leave available to bedisclosed to the employee at least quarterly and can be included onthe pay statement
• Montgomery County, Maryland –requires the amount of paid sickleave available to be disclosed to the employee in writing with eachpayment of wages
Paid Sick Leave – Pay Statement Impact
Copyright © 2016 ADP, LLC37
Ø Federal Contractors –Effective January 11, 2016Ø Pay Transparency Policy Statement
• The contractor will not discharge or in any other manner discriminate againstemployees or applicants because they have inquired about, discussed, ordisclosed their own pay or the pay of another employee or applicant.
Ø EXCEPTION
Ø Oregon. Pay Transparency. Effective January 11, 2016.Ø Prohibits employers from discriminating against an employee who inquires
about, discusses or discloses his/her wages or the wages of another employee.Ø EXCEPTION.
Ø New York. Pay Transparency. Effective January 21, 2016.Ø Prohibits employers from discriminating against an employee who inquires
about, discusses or discloses his/her wages or the wages of another employee.Ø NO EXCEPTION
Pay Transparency