LONE STAR SUMMIT 2016: TO EXEMPT

OR NOT TO EXEMPT

NATALIE C. ROUGEUX, J.D., SPHR, SHRM-SCPROUGEUX &

ASSOCIATES PLLC Labor & Employment Law

Disclaimer

This presentation and written materials are provided for general informationand educational purposes only. Thus, the information provided in these slidesand corresponding written materials does not constitute legal advice anddoes not establish an attorney-client relationship between you and Rougeux& Associates PLLC or its attorneys. Further, the information provided with thispresentation is subject to change and may not be current, complete, orapplicable to your particular circumstances. Accordingly, Rougeux &Associates PLLC undertakes no responsibility for any reliance on, or use of, theinformation provided with this presentation. Finally, as legal advice must betailored to specific facts and circumstances, this information cannot andshould not substitute the advice of legal counsel.

FLSA – BACKGROUND

What is Exempt/OT Ineligible?

EE must be paid on a salary basis(regardless of quality or quantity);

Salary must meet min. threshold; and EE must perform specific job duties. Each

exemption has primary duties EE mustperform.

Non-Profit Organizations

Enterprise Coverage for Non-Profits

Non-profits are not covered enterprises under FLSAunless they engage in ordinary commercial activitiesthat result in sales made or business done of at least$500k.

Enterprise coverage applies only to the activitiesperformed for a business purpose; it does not extendto the organization’s charitable activities.

Individual Coverage

Even if the organization is not covered, EEsmay be covered individually if engage ininterstate commerce.

EEs whose work involves/relates to themovement of persons or things across statelines are considered to be engaged ininterstate commerce.

Examples of Interstate Commerce

Making out-of-state phone calls Receiving/sending interstate mail or electronic

communications Ordering or receiving goods from an out-of-state

supplier Handling credit card transactions or performing the

accounting or bookkeeping for such activities

A Note on Volunteers

Volunteers

Paid EEs of such organizations may not volunteer toperform on an uncompensated basis the sameservices they are employed to perform.

A volunteer will not be considered an EE for FLSApurposes if the individual volunteers freely for publicservice, religious or humanitarian objectives, andwithout contemplation or receipt of compensation.

Defining Volunteers

Is the worker motivated by a personal civic, humanitarian,charitable, religious or public-service motive?

Are the services performed typically associated with volunteerwork?

Are the services provided different from those typically performedby paid workers and are the hours of service less than full time?

How much control does the nonprofit exert over the volunteerwhile she or he is performing services?

Does the volunteer typically arrange his or her own schedule toprovide services when it is convenient for the volunteer?

Refresher on Exemptions

The Bosses Are Exempt

Highly Compensated Employees

At least $134,004/year.

Customarily and regularly performs at least one exempt duty.

Executive Exemption

At least $47,476/year.

Management of enterprise or department/subdivision.

Customary/regular supervision of 2 or more EEs.

Able to hire/fire or recommendation given particular weight.

Exempt or Non-Exempt?

Family Dollar Cases (W.D.N.C. 2012 and 2013) Store managers worked over 55 hours/week and were the

highest paid employees in their stores.

Oversaw security, scheduled and directed other EEs, counseledand disciplined EEs, ensured adherence to payroll budget,screened job candidates, and provided hiring recommendations.

But, one devoted 70-75% of her time and the other 90% of histime to performing non-exempt work, such as cleaning the storeand stocking shelves.

Decision – Exempt

The regs recognize concurrent performanceof exempt and non-exempt work.

Managerial tasks were of primaryimportance when compared with otherduties.

They were relatively free from supervision.

Hiring and discipline recommendations weregiven particular weight.

They exercised discretion "virtually every dayand all day long."

The general rule is 50% or

more time performing

exempt work, but it clearly depends….

Administrative Exemption

At least $47,476/year.

Primary duty of performing office or non-manual workdirectly related to management.

Must exercise discretion and independent judgment inmatters of significance.

Does not apply to application of established techniques orstandards, clerical work, or repetitive/routine tasks.

A "catch all" exemption and one of the most unclear.

Exempt or Non-Exempt?

Pepperling v. Materials Eval. & Tech. Corp. (S.D. Tex. 2013)

Office Manager/Coordinator coordinated the daily activities ofall inspection personnel in Houston.

Scheduled shop/field work and provided guidance to EEs.

Scheduled work for crews.

Made sure crews had required equipment/paperwork on a job-by-job basis and knew what time/where to be on a daily basis.

Ordered office supplies.

Solved client problems and replaced inadequate personnel.

Decision - Exempt

Based on the information provided by the customer, woulddecide which inspector(s) to dispatch for that particularassignment.

Would occasionally go into the field to meet with customers todiscuss "upcoming work, how we were doing."

Would at times send a replacement inspector if the originalinspector "didn't have the right thing."

Had "written up" employees and given the written warning tothe general manager.

Job description was one of key pieces of evidence.

Professional Exemption

At least $47,476/year.

Learned Professional: Performance of work requiringadvanced knowledge in a field of science or learning. Advanced knowledge must be predominantly intellectual, include work

requiring consistent exercise of discretion/judgment, and be used toanalyze, interpret, etc.

Requires specialized degree used in that profession.

Creative Professional: Performance of work requiringinnovation, originality, or talent in a recognized field of artisticendeavor.

NEW RULE – NOW WHAT??

Current Final Rule (effective Dec. 1, 2016)

Salary Level

$455

weekly

$23,660

annually

$913 weekly / $47,476 annually

(40th percentile of full-time salaried workers in the lowest-wage

Census region – currently the South)

HCE Salary

Level

$100,000

annually

$134,004

(90th percentile of full-time salaried workers nationally)

Automatic

AdjustingNone

Every 3 years, 40th percentile and 90th percentile + 150 days'

notice

Bonuses and

CommissionsN/A

Up to 10% of salary can come from non-discretionary bonuses,

incentive payments, and commissions, IF paid at least quarterly

and "catch up" by next payroll if salary not met.

Who is Impacted?

Private ERs with "white collar"salaried employees (EAPs)

Non-profit ERs if engaging in commerce or if EEs are engaging in commerce

Executive Administrative Professional

• Managing enterprise (or customarily recognized dept. or subdivision)

• Customarily and regularly direct work of at least 2 or more full-time EEs (or equivalent)

• Authority to hire/fire, or EE's suggestion and recommendation re: hire/fire/promote given particular weight

• Office or non-manual work directly related to mgmt or general bus. ops. of ER or ER's customers

• Exercisediscretion and independent judgment re: matters of significance

• Learned: work requiring advanced knowledge in field of science or learning acquired by prolonged course of specialized intellectual instruction

• Creative: invention, imagination, originality or talent in field of artistic endeavor

Are Employees Close?

Pay it!But, think about compression issues

and impact on morale.Make sure there's no EPA issues.Be strategic – it's going up in 3 yrs.

Can't Afford the Increase?

Hourly + Overtime Salaried, Non-Exempt Fluctuating Workweek Piece Rate Commission for Retail and Service

Hourly + Overtime – Easy Method

Convert current salary to hourly rate and pay OT = maybe more pay or control OT hours worked

Math is easy = Current pay ÷ 2,080 hrs/yr Ex: Salary is currently $30,000 New hr rate = $14.42/hr; $21.63/OT hr

When Is this Option Best?

You have no or limited OT. You do not have adequate administrative support. If business increases substantially, you have the

ability to bring in additional labor (instead ofincurring the added OT expense).

Morale will not be too negatively impacted. But, maybe use time sheet instead of time clock? Maybe still give benefits of a salaried employee?

Hourly + Overtime – Alternate Method

Base hourly rate on avg. hours worked Ex: Salary is currently $30,000 and works ~50

hours/week 50 hrs/week x 52 weeks = 2,600 hrs/yr $30,000 ÷ 2,600 = $11.54/hr, $17.31/OT hr. ($11.54) (40) + ($17.31)(10) $461.60 + $173.10 = $634.70/$33,004/yr

When Is this Option Best?

You have consistent OT (otherwise, EE will earn lessif he/she doesn't work the avg OT).

You do not have adequate administrative support. If business increases substantially, you have the

ability to bring in additional labor (instead ofincurring the added OT expense).

But, morale may be negatively impacted because ofuncertainty.

Salaried Non-Exempt: Option 1

Easy (safe) method with 1.5 times OT Convert guaranteed salary to hourly rate using

2,080 hrs/year or actual hrs/year Pay overtime on hourly rate at 1.5 times Otherwise, treat EE as a salaried EE Same as hourly + OT with fancy title +

guaranteed weekly pay

When Is this Option Best?

You have limited OT and/or can control OT. Due to morale, employee needs to have a "salary." You have strong trust in employees and want to

continue treating them like salaried employees. But: Should not deduct if they miss work or due to poor

production Must still require that they clock in/out or turn in

time sheets

Salaried Non-Exempt: Option 2

Only if hours fluctuate + should treat as salaried EE Must have an agreement with the EE regarding the

hours for which a salary is paid Pay ½ time for any hours over 40 and within the

agreed hours for which the salary is paid Pay 1.5 times for any hours over 40 and over the

agreed hours for which the salary is paid Must receive minimum wage for all hours

Salaried Non-Exempt: Option 2

EE works between 40-50 hours per week. Agreement = salary of $450/wk for 45 hours/wk Employee works 47 hours RR = $450 ÷ 45 = $10/hour (make sure this is at

least min. wage) Weekly pay = $450 + ($5) (5 hrs) + ($15.00) (2 hrs) Weekly pay = $450 + $25.00 + $30.00 = $505.00

When Is this Option Best?

The workweek fluctuates, but not severely. EE can better budget pay, and you can get the same

hours and productivity. You are willing to always be the "loser" if EE works

less than the agreed amount of hours for which thesalary is paid (but, think this is best for morale).

Good middle ground between hourly options andmore conservative salaried non-exempt option.

Other Thoughts

Try it out now and adjust by Dec. 1. NLRA – Employees can discuss their wages! Unemployment Insurance – If anything you do

results in a loss of pay, employee may be entitledto partial unemployment or have a good reasonto quit.

Avoid Off-Clock Work – It's okay to prohibit OT,but must still pay if they work it.

Questions?