FLSA: Raising the Bar for Employee Exemptions
How Will It Affect Your Organization?
Presented by John S. Gannon, Esq.
Agenda
Wage/Hour Basics
Proposed FLSA Regulations
Action Steps for Businesses
Questions?
Basic Wage/Hour Principles
The Fair Labor Standards Act (FLSA) is the federal statute that regulates wage and hour law
Requires payment of the federal minimum wage ($7.25) and guarantees compensation for all time worked, including overtime at time-and-a-half for all hours over 40 in a workweek
Basic Wage/Hour Principles (cont.)
Be aware of state and local minimum wage laws setting higher rate Minimum wage increases have taken
place across the country in 2015
Common Wage/Hour Mistakes
Misclassification of employees as exempt Executive, administrative, professional,
outside sales Not paying for all hours worked
e.g., meal breaks, restrictive on-call time, travel, training, etc.
Not paying/miscalculating overtime
Common Wage/Hour Mistakes (cont.)
Treating employees as independent contractors Employee status is presumed under
MA law
Lay of the Land
DOL’s proposed revisions to the “white-collar” overtime
exemptions and what the proposals, if
adopted, will mean for employers
Certain Employees Are “Exempt” from Overtime Rules
White Collar Exemptions Executive, administrative, professional,
outside sales, computer employees Must (currently!)
Be paid on a nonfluctuating salaried basis of at least $455 per week (except outside sales employees and some professionals); AND
Perform exempt duties
President Obama’s Directive
March 2014: President issues memo directing Secretary of Labor to “modernize and streamline” overtime rules
Goal: expand number of employees eligible for overtime
DOL’s Proposed Regulations
Announced by DOL June 30, 2015 Major change: more than double the
minimum salary threshold for “white collar” exemptions
Provide for automatic annual updates of minimum salary threshold
DOL’s Proposed Regulations (cont.)
Notice of proposed rulemaking (NPRM) published July 6, 2015
60 days to comment Final rule: Early 2016?
Salary Threshold Doubled
Currently $455/week ($23,660 annually) Proposed: Increase to $921/week ($47,892
annually) Expected to be $970/week ($50,440
annually) when final rule issues Bottom line: Almost all employees making
less than $50,440/year will need to be paid overtime premium
Why the Increase?
Last increase in 2004, before that 1975 According to DOL:
“The lapses between rulemakings have resulted in salary levels that are based on outdated salary data and thus ill-equipped to help employers assess which employees are unlikely to meet the duties tests for the exemptions”
New minimum salary threshold based on 40th percentile of weekly earnings for full-time salaried workers
Automatic Annual Increases
Proposed regulation calls for automatic, annual increases tied to similar BLS statistics
DOL plans to publish a notice with the new salary level at least 60 days before the updated rates would become effective
Problems: Regional wages across country Some industries hit harder
Other Exemption Impacted Highly compensated employee (HCE
exemption) Currently, paid $100,000/year (including
bonus, commissions, etc.) AND At least one duty is satisfied from any
test Proposed: increase to $122,148 (90th
percentile of full-time salary workers)
Discussion on Duties Tests
Proposed rule does not change any of the duties tests
DOL requested comments to determine whether duties tests also need to change Minimum amount of time exempt
employees spent on exempt duties (50% test)?
Focus is on lower-level executives (working supervisors, assistant managers)
Additional Comment Requests Including nondiscretionary bonuses
(commissions) when calculating minimum salary threshold
May only be used for 10% of income, must be paid at least monthly
Next Steps for Employers Conduct an audit Identify jobs that will be impacted by
salary threshold change Options:
Do nothing. Pay overtime (time and a half) to
currently exempt employees who are below the 40th percentile of weekly earnings for full-time salaried workers.
Options Reclassify and limit overtime possibilities Give raises Reclassify and cut pay
Readjust wages down, taking into account the same number of hours worked per week and the overtime that you’ll have to pay as a result
Opportunity to Make Corrections
Good time to update job descriptions and correct classification mistakes
Use change in the regulations as “cover”
What to Do When You Find an Employee Has Been Misclassified
If misclassified as exempt, employer has obligation to pay overtime or other compensation owed to employee
Options: Do nothing, but limit overtime going
forward Change to non-exempt and pay back for
all overtime (How much? Can employee still sue?)
What to Do When You Find an Employee Has Been Misclassified
Options (cont.): Make change prospectively
Determine exposure Has the employee worked overtime? How much? How many employees are there in this job
classification? What records exist that would show hours of
work?
Questions?
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