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FLSA - EXEMPT VS . NON - EXEMPT Presented by Traci Scherck, MPA, SPHR, SHRM-SCP WEGNER CPA'S | SCHERCK CONSULTING
FLSA - EXEMPT VS. NON-EXEMPTP r e s e n t e d by Trac i Sche rck , MPA, SPHR, SHRM- SCP
WEGNER CPA'S | SCHERCK CONSULTING
S P E C I F I C
S You shou ld k n o w the o u t c o m e of your goal
M E A S U R A B L EM You shou ld k n o w w h e n you wi l l have reached your goal
A A T T A I N A B L EYou shou ld be able to achieve your goals
R R E L E V A N TWil l your goal he lp you in the long run?
T T I M E - B O U N D
Set a t i m e f ram e for your goals
W H Y
Y Does th is goal a l ign w i t h your i n ten t i on a n d organizat ions
st ra tegic direct ion?
Agend a
M i n i m u m Wage
Salary Threshold
What is inc luded in the Regular Rate of Pay
Bonus impac t on
W hat is an exemp t employee?Salary Basis TestSalary Level TestJob Duties Test
Aud i t ing your exemptions Highly Compensated ExecutiveLearned Professional Creative Professional Compute r Professional Outside Sales Administrat ive Professional
Misclassification
FLSA Changes 2020
Three Tests for Exempt Employees
1.The Job Duties TestHighly Compensated ExecutiveLearned Professional Creative Professional Computer Professional Outside Sales Administrat ive Professional
2.The Salary Basis Test*The employee is pa id on a fixed salary
3.Salary LevelThe employee’s salary meets the m i n i m u m a m o u n t based on the exempt ion
Salary BasisExceptions to No Pay Docking Rule
D e d uc t i ons f r o m pay are permiss ib le w h e n an e x e m p t emp loyee : Is absen t f r o m w o r k for one or m o r e fu l l days for pe rsona l reasons o t h e r t h a n sickness or d isab i l i tyFor absences o f one or m o r e fu l l days d u e t o sickness or d isab i l i ty i f t h e d e d u c t i o n is m a d e in acco rdance w i t h a b o n a f i de p lan, po l i cy or p rac t i ce o f p r o v i d i ng c o m p e n s a t i o n for salary lost d u e t o i l lness
To of fset a m o u n t s emp loyees receive as jury or w i tness fees, or for m i l i t a ry pay
Salary BasisExceptions to No Pay Docking Rule
D e d uc t i ons f r o m pay are permiss ib le w h e n an e x e m p t emp loyee :
• For pena l t i es i m p o s e d in g o o d f a i th for i n f ract ions o f safety ru les o f m a j o r s ign i f icance
• For u n p a i d d isc ip l inary suspensions o f one or m o r e fu l l days i m p o s e d in g o o d f a i t h for w o r k p la ce c o n d u c t ru le in f ract ions.
• An e m p l o ye r is n o t r equ i red t o pay t h e fu l l salary in t h e i n i t i a l or t e r m i n a l w e e k o f e m p l o ym e n t
• F or weeks in w h i c h an e x e m p t e m p l o ye e takes u n p a i dleave u n d e r t h e Fami ly a n d Med i ca l Leave Act.
Example:Effect of Improper Deductions
If Manager A has docked the pay of Engineer A on each of 12 days when Engineer A arrived late for work during the last 3 months.
Then the exemption could be lost for Engineer A and Engineer B during that 3 months.
The exemption could not be lost for the Chemist or Engineers C and D
Enterprise
Manager A
Engineer A
Engineer B Chemist
Manager B
Engineer C
Engineer D
PRESENTATION FLOWImportant Things to Discuss
What creates culture? Definition
P O R T A L T E C H C O . | 2 0 2 0
Insight + Act ion =Results
Job Duties Test
All Exemption Categories include: Independent Decision Making
Exercising Discretion over significantm at ters
Audi t ing Your Exempt ionsHighly Compensated
The employee earns total annual compensat ion of$100,000 or more, wh ich includes at least $455*per week paid on a salary basis
The employee’s pr imary dutyincludes performing office ornon-manual work; and
The employee customarily and regularly performs at least one of the exem pt dut ies or responsibilit ies of an exem pt executive, administrative or professional employee.
Audi t ing Your Exempt ionsExecutive
Primary duty is m anagem ent of the enterprise or of a customarily recognized depar tm ent or subdivision;
Customarily and regularly directs the work of t wo or m ore other employees; and
Authori ty to hire or fire other employees or whose suggestions and recommendat ions as to hiring, firing, advancement, p rom ot ion or other change of status of other employees are given part icular weight
"White Collar" Executive Exempt ion
“White Collar” Exemption: 20% Owner Executives.Exempt ion also includes
Any employee who:Owns at least a bona f ide 20% equi ty interest in the enterprise at wh i ch he or she is employed, andIs actively engaged in m a n a g e men t of tha t enterprise
Salary level and salary basis tests d o no t apply to employees w h o m e e t these requirements
Department or Subdivision
Examples of customarily recognized departments or subdivisions include:
HumanResources
Compensation Benefits
Recruitment Training
EEO Labor Relations
Sales
New YorkRegion
BostonDistrict
AtlantaDistrict
ChicagoRegion
St. LouisDistrict
ClevelandDistrict
Staffing Meets the“Two or More” Requirement
AssistantManager
AssistantManager
Full-timeEmployee
Half-timeEmployee
General Manager
AssistantManager
Half-timeEmployee
Full-timeEmployee
Full-timeEmployee
Half-timeEmployee
Half-timeEmployee
Half-timeEmployee
Half-timeEmployee
Staffing Does Not Meet the “Two or more” Requirement
AssistantManager
AssistantManager
Full-timeEmployee
Full-timeEmployee
Full-timeEmployee
Audi t ing Your Exempt ionsLearned Profession
The employee’s primary duty m us t be the performance of work requir ing advanced knowledgeIn a f ield of science or learning
Customarily acquired by a prolonged courseof specialized intel lectual instruct ion
Learned Professional Examples
Occupat ions w i t h recognized professional status, as dist inguished f rom the mechan ica l arts or skil led trades
Law * Account ing * Actuarial Computa t ion * Theology Teaching *Physical Sciences * Medic ine * Architecture * Chemical Sciences *Pharmacy * Engineering * Biological Sciences
C o m m o n errors: misappl icat ion of exempt ions
Licensed Practical Nurses Paralegals, legal assistants Engineering TechniciansAccount ing clerks, bookkeepers typical ly pe r forming rout ine work Cooks per forming predominant l y rout ine mental , manual , mechan ica or physical work
PRESENTATION FLOWImportant Things to Discuss
What creates culture? Definition
P O R T A L T E C H C O . | 2 0 2 0
The employee’s pr imary duty mus t be the per formance of work requir ing
invention imaginat ion originality or ta lent in a recognized f ield of artistic or creative endeavor
Audi t ing Your Exempt ionsCreative Professional
Recognized Field of Artistic or Creative Endeavor
MusicMusicians, composers, conductors, soloists
Graphic Artsphotographers, cartoonistsPain t ers,
Act ing Wri t ing
Essayists, novelists, short-story writers, playwrights, screenwriters w h o choose their o w n subjects, responsible writing positionsin advertising agencies
Audi t ing Your Exempt ionsComputer Professional
The appl icat ion of systems analysis techniques and procedures, inc luding consult ing w i th users, to determ ine hardware, software or system funct ional specifications;
The design, development, documentat ion, analysis, creation, testing or modi f icat ion of com pute r systems or programs, inc luding prototypes, based on and related to user or system design specifications;
The design, documentat ion, testing, creation or modi f icat ion of com pute r programs related to machine operat ing systems;or
A combinat ion of the aforement ion
Computer Professionals
Addit ional ly, exemp t employees m u s t also receive either: Guaranteed Salary of at least $455 weeklyHourly rate of at least $27.63
Primary duty mus t be: mak ing sales (as def ined in the FLSA)or obta in ing orders or contracts for services or for the use of facilities for wh ich a consideration wi l l be pa id by the cl ient or customer; and
Must be customari ly and regularly engaged away f rom the employer’s place or places of business.
Audi t ing Your Exempt ionsOutside Sales
Audi t ing Your Exempt ionsAdministrative Professional
Primary du ty is the per formance of off ice or non-manual work directly related to the m a n a ge men t or general business operations of the employeror the employer’s customers; and
Whose pr imary du ty includes the exerciseof discretion and i ndependen t j u d g m e n t w i t h respect to mat tersof significance.
Management or General Business Operations
•Tax • Finance • Account ing • Budge t ing • Aud i t i ng • Insurance•Qual i ty Control • Purchasing • Procurement •Advert is ingMarket ing•Research • Safety and Hea l th • H u m a n Resources • Employee Benefits•Labor Relations • Publ ic and Government Relations•Legal and Regulatory Compl iance • Compute r Network, Internetand Database Admin is t ra t ion
Internal Aud i t Checklist
1.Review the weekly salary requirements for compl iance (Salary Level) 2.Review job descript ions for qual i f ied dut ies (Job Duties Test - JDT) 3.Com p are job d escrip t ion w it h act u al d u t ies b ein g p erform ed . (JDT) 4.Review % of t i m e spent on exemp t and non-exempt dut ies (JDT) 5.Review/Create wr i t ten policies and procedures (All 3 tests)6.Review payroll policies and practices for deduct ions f rom exemp t employees (Salary Basis Test)6.Be certain policies and procedures are “clearly commun ica ted” (All 3 Tests)
Insight + Act ion = Results
Safe Harbor Policy
Exempt ion wi l l NOT be lost if the employer:Has clearly c o m m un i ca t ed pol icy proh ib i t ing improper deduct ions inc lud ing comp la in t mechan i smReimburses employees for improper deduct ionsMakes good fa i th c o m m i t m e n t to comp ly in future
If employer wi l l fu l ly violates pol icy by con t inu ing improper deduct ions after receiving employee complaints, i t cannot c la im the exempt i on for the affected employees
Misclassification Penalties
Liable for all unpa id overt ime owed to that employee going back as far as 3 years prior to the date of the c la im
Court may levy penalt ies in the form of l iquidated damages in an am ount equal the sum of unpa id wages the employee is owed
Employers who wil l ful ly and/or repeatedly misclassify employees as exem pt are subject to up to$1,000 in civil penalties for eachviolation and may be criminallyprosecuted as wel l
Insight + Act ion =Results
Clearly Communica ted
Offer Letter FLSA StatusPer pay per iod wage vs. annual
Job DescriptionFLSA Status Essential DutiesSupervisory Responsibilit ies Educat ion Certif icationMath, Language & Reasoning Abil i t ies Physical Demands/ Work ing Condit ions
HandbookSafe Harbor Policy
Job Descript ion Template Educat ion
EDUCATION and/or EXPERIENCE1) No prior exper ience or training.2)Less t han h igh school educat ion; or u p t o one-month related exper ience or training; or equivalent comb ina t ion of educat ion and experience.3)High school d ip loma or general educat ion degree (GED) or one t o threemonths related exper ience and/or training; or equivalent comb ina t ion of educat ion and experience.4)One-year cert if icate f r om col lege or technical school; or three t o six mon ths related exper ience and/or training; or equivalent comb ina t ion of educat ion and experience.5)Associate degree or equivalent f r om two-year col lege or technica lschool; or six month s to one-year related exper ience and/or training; orequivalent combinat ion of educat ion and experience.6)Bachelor's degree f rom four-year col lege or university; or one to t w o years related exper ience and/or training; or equivalent combinat ion.7)Fifth year col lege or university p rogram cert if icate; or t w o to four years related exper ience and/or training; or equivalent comb ina t ion of educat ion and experience.8)Master's degree or equivalent; or four t o ten years related exper ience and/or training; or equivalent comb ina t ion of educat ion and experience.9)Doctoral degree or equivalent; or more than 10 years related exper ience and/or training; or equivalent comb ina t ion of educat ion and experience.
S P E C I F I C
S You shou ld k n o w the o u t c o m e of your goal
M E A S U R A B L EM You shou ld k n o w w h e n you wi l l have reached your goal
A A T T A I N A B L EYou shou ld be able to achieve your goals
R R E L E V A N TWil l your goal he lp you in the long run?
T T I M E - B O U N D
Set a t i m e f ram e for your goals
W H Y
Y Does th is goal a l ign w i t h your i n ten t i on a n d organizat ions
st ra tegic direct ion?
Agend a
M i n i m u m Wage
Salary Threshold
What is inc luded in the Regular Rate of Pay
Bonus impac t on
W hat is an exemp t employee?Salary Basis TestSalary Level TestJob Duties Test
Aud i t ing your exemptions Highly Compensated ExecutiveLearned Professional Creative Professional Compute r Professional Outside Sales Administrat ive Professional
Misclassification
Actions = Implementa t ion
Quest ions
