Exempt vs Non-Exempt

Better Workplace

Better Workforce Better World

How to Classify Your Exempt and Non-Exempt Employees Correctly, and Meet the New Department of Labor Requirements Webinar

June 15, 2016

"Exempt or Non Exempt? HRDrive Has The Answer

KPA: Environmental Health & Safety | HR Management |Sales & Finance Compliance

KPA delivers Environmental Health & Safety, HR Management and Sales & Finance

Compliance programs with a vision of creating a Better Workplace, Better Workforce,

and a Better World. Over 6,500 clients, across 48 states look to KPA as their

compliance partner providing solutions through a combination of innovative software,

interactive training and on-site consulting, resulting in increased production and profits.

A comprehensive solution for Environmental Health & Safety, HR Management,

and Sales & Finance Compliance.

Questions

• If you have questions during the presentation, please submit them using the “Questions” feature

• Questions will be answered at the end of the webinar

•If your question does not get answered, we will reach out to you individually

Exempt vs Non Exempt

Exempt employees do not receive overtime.

They are paid for the job they do, not the hours

they work. “Guaranteed salary”.

Non exempt employees must be paid for all

hours worked and depending on the position and

the business of the employer they may be entitled

to overtime. “Hours paid for hours worked”.

What Changed

• Exemption from Overtime = $47,476 ($913 per week)More than $455 but less than $913 will need to be reclassified

• No changes to duties test

• 3 year increases

• Ability to include bonuses, commissions and incentive

payments

– 10% of total compensation for non- highly compensated employees if

the incentive payments are made at least on a quarterly basis

Avoiding Overtime, Fines and Penalties

• Increase salaries (still must meet the duties test)

• Decrease bonuses for those employees whose overall compensation exceeds the new minimum. Increase salary by bonus amount

• Reclassify exempt employees as non-exempt and pay hourly.

• Increase staffing levels to eliminate excessive overtime

The BAD news is that all of these options will require most employers to spend more money on wage payments

The GOOD news is that you will be in compliance and will not be subject to lawsuits, fines, and penalties.

Federal Exemptions

MINIMUM WAGE/ OVERTIME/ RECORDS

• Executive

• Administrative

• Professional– Creative

– Computer Relegated

• Highly Compensated

OVERTIME ONLY Dealership Specific

• Salesman

• Partsman

• Mechanic

• Commission-paid

The FLSA also has an exemption from the overtime pay requirements for certain commission employees of a retail or service

establishment. For this exemption to apply, three requirements must be met: (1) The employee must be employed by a retail or

service establishment; (2) The employee’s regular rate of pay must exceed one and one half times the applicable minimum wage;

and (3) more than half of the employee’s total earnings in a representative period must consist of commissions on goods and

services.

Three Factors

1. How is the employee paid?

2. How much is the employee paid?

3. What does the employee do?

• The employee must be paid a salary, must make a minimum of $913 per week/ $47,476 per year and must meet all of the qualifications of one of the duties test to be classified as exempt if using the Executive, Administrative or Professional duties test.

• Highly Compensated employees must perform at least one exempt duties of an Executive, Administrative or Professional employee to be exempt.

Irrelevant Factors

• Employee is paid a salary- unless meets other factors for total compensation and duties test

• “We consider employee a manager”

• Employee could supervise someone, sometimes

• “When employee was hired, we agreed no overtime would be due”

• “We give them comp time when they work over 40 hours”

EXEMPT only means that these employees generally

meet all the criteria and are generally exempt from overtime

NOT EXEMPT only means that these employees generally do

not meet the criteria for this exemption and generally are not exempt

WARNING! Job titles are not controlling

CAUTION!

The Duties Tests

1. Executive

2. Administrative

3. Professional

4. Outside Sales

5. Highly Compensated Employees“highly compensated employee” exemption under 29 U.S.C. § 541.601. The relevant section

of the regulation reads: “An employee with total annual compensation of at least $134,004 is deemed exempt . . . if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional

employee.”

• Is in charge of a department or sub-department, and

• Supervises the work of two or more full time employees, and

• Has the authority to hire or fire employees

Executive Exemption

• Primary duty is performing non-manual work related to management policies or general business operations, and

• Exercises discretion and independent judgment with little or no supervision (holds a position of responsibility).

Administrative Exemption

Professional Exemption

• Performs work requiring advanced knowledge, defined as work

that is predominately intellectual in character and requires

consistent exercise of discretion and judgement.

• Performs work that requires knowledge of an advanced type in

a field of science or learning that is customarily acquired by a

prolonged course of specialized intellectual instruction.

• Invention, imagination, originality or talent in a recognized field

of artistic or creative endeavor.

Creative Professional Exemption

• Invention, imagination, originality or talent in a recognized

field of artistic or creative endeavor.

• Works in a recognized field of artistic or creative endeavor,

including music, writing, acting and the graphic arts.

Computer Related Professional Exemption

• Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or systems functional specifications.

• Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

• Design, documentation, testing, creation or modification of computer programs related to machine operations systems.

• OR a combination for the above duties that require the same level of skill.

Outside Sales Exemption

• Making sales

• Obtaining orders or contracts for services or facilities

• Who are customarily and regularly engaged away from the

employer’s place of business(s) while selling or obtaining

orders.

Minimum salary requirements do not apply for outside sales persons

• Performs office or non-manual work, and

• Is guaranteed total annual compensation of at least $134,004 per year, and

• Performs any one of the exempt duties of an executive, administrative or professional employees

Highly-Compensated Employees

HRDrive

Classification Wizard

Overtime Calculation Wizard

Pay Plan Templates

Job Descriptions Templates

HRDrive

HRDrive Toolkit

HRDrive Classification Wizard

HRDrive Classification Wizard

HRDrive Classification Wizard

HRDrive Classification Wizard

HRDrive Classification Wizard

Calculating Overtime (Premium)

1) Divide amount of salary, bonus, commission, etc. received in a week by the hours worked in the week.

2) Then take ½ of that figure times the number of overtime hours

3) That gives you the additional overtime (premium) due

HRDrive Overtime Calculator Wizards

Wage and Hour Consideration

• You can pay commissions weekly, bi- weekly,

semi-monthly or monthly.

• You must satisfy minimum wage on the same

basis: weekly, bi-weekly, semi-monthly or

monthly.

• You can “loan” or advance a sales person money

to cover the minimum wage and then recoup it in

subsequent weeks or months.

• You must pay for all hours worked: sales

meetings, off day deliveries, prospecting, etc.

Who is an “independent contractor”?

• Not just because you don’t want to pay overtime or benefits• Factors to consider:

– The extent to which services rendered by an individual are an integral part of the principal’s business

– The permanency of the relationship between the individual and the principal

– The amount of investment in facilities and equipment by the individual

– The opportunities for profit or loss by the individual and the method of compensation

Time Records

• The employer shall maintain an accurate record of the hours worked by each non-exempt employee each day and each week

• The employer can delegate this duty to employees, but it remains responsible for compliance

• No required format: Punched time cards, handwritten time

sheets, computer log, etc., so long as they are accurate

• There is no fine for failing to require employees to keep accurate

records

• However, without good time records, you are at your employees’

mercy

• Most accurate: Punched time card

Who is an “independent contractor”?

• Factors to Consider:

– The degree of independent business organization and operation by the

individual

– The degree and nature of control of the individual by the principal

– The degree of independent judgment exercised by the individual who performs the services

– Performance of the same or similar services by the individual for third parties in addition to the principal

– Employment of the individual by the principal in any other capacity

– A comparison of the relationship to other independent contractor operations of a similar nature in the industry

– The right of either party to terminate the relationship on short notice without penalty

Payroll Practices: Red Flags

Watch out for “red flags” regarding payroll practices:

– Improper deductions from salaried employees

– Improper calculation of “regular rate”

– Job descriptions for exempt employees that do not reflect exempt duties

– Nonexempt employees working through meal breaks

– Nonexempt employees performing work before or after they punch or log in/out

– Employees who routinely stay late but have no overtime

– Not complying with employer’s own written policies

Federal versus State Law

• Federal law does not preempt state

employment laws

• Employees are entitled to the provision

most favorable to them

State Wage Law Concerns

1. Higher minimum wages

2. Different or non-existent exemptions

3. Wage payment laws

4. Wage deduction laws

5. “Living wage” laws

Irrelevant Factors

• Employee is paid a salary- unless meets other factors for total compensation and duties test

• “We consider employee a manager”

• Employee could supervise someone sometimes

• “When employee was hired, we agreed no overtime would be due”

• “We give them comp time when they work over 40 hours”

Common Classification Mistakes

• Not considering differences in state and federal salary and duties tests

• Treating trainees as exempt before they fully qualify as exempt

• Failing to guarantee the proper minimum salary

• Prorating the salary of a part-time exempt employee to less than $913/week

• Making improper deductions from salaries of exempt employees

Questions and Answers

38– KPA CONFIDENTIAL –

QUESTIONS?

Contact Information

www.kpaonline.com

kcarlson@kpaonline.com

866-356-1735