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?

Employers Association of the NorthEast

4 Convenient Offices:

67 Hunt StreetPO Box 1070

Agawam, MA 01001-6070413-789-6400

173 Interstate LaneWaterbury, CT 06705

203-686-1739

15 Midstate DriveAuburn, MA 01501

508-767-3415

Toll Free – 877-662-6444www.eane.org

6 Blackstone Valley PlaceSuite 402

Lincoln, RI 02865401-732-6788