New Overtime Regulations: Now What?

Presented by

Scott B. Mario

King & Spalding LLP

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Overview

FLSA basics The new FLSA regulations Reclassifying employees Compensating non-exempt employees Alternative workers: independent contractors,

volunteers and interns

Fair Labor Standards Act (“FLSA”)

Passed during the Great Depression Three components:

• Child labor • Minimum wage • Overtime

Basic Overtime Requirements

Employer must pay overtime wages at the rate of 1 ½ times an employee’s regular hourly rate for all hours worked over 40 in a workweek

Employer must keep accurate records of all time worked

Exempt vs. Non-Exempt

Exempt: exempt from FLSA’s minimum wage and/or OT provisions • Must fit within one of the specific exemptions created

by Congress (e.g., executive, administrative, professional)

Non-Exempt: not exempt from FLSA’s minimum wage and/or OT provisions

Unusual FLSA Exemptions Employees engaged in the

catching or harvesting of fish, shellfish, crustaceans, sponges or seaweeds

Movie theater employees Homeworkers engaged in

the making of wreaths composed principally of natural holly, pine, cedar or other evergreens

Three Requirements to be Exempt

Duties – Employee must perform job duties that satisfy the duties test for the applicable exemption

Salary basis – Employee must be paid on a salary basis (subject to some exceptions)

Salary level – Employee must be paid at or above the minimum salary level established by the DOL (subject to some exceptions)

New FLSA Regulations

Were supposed to take effect Dec. 1, 2016 Double the minimum salary level (from $23,660

per year to $47,476 per year) Minimum salary level will adjust automatically

every 3 years

What Happened?

States and business groups sued to block the new regulations from going into effect

Federal judge issued preliminary injunction on Nov. 22, 2016

What Comes Next?

DOL has appealed to the U.S. Court of Appeals for the Fifth Circuit

Case may head to U.S. Supreme Court

Possible action by Congress

Possible action by new Labor Secretary

What Should You Do Now?

Wait until the dust settles Raise salary to new minimum salary level Reclassify employees from exempt to non-

exempt

Wait Until the Dust Settles

Explain that the new overtime rule was to take effect December 1.

Explain that a court has issued an order that has temporarily stopped the new rule from going into effect.

State that your organization will continue to monitor the status of the new rule, but in the meantime it will comply with the law that is currently in effect.

Raise Salary to New Minimum Level

Recall that all 3 tests must be met for exemption to apply:

Salary basis Salary level Duties

Reclassify Employees

Hourly non-exempt Salaried non-exempt Fluctuating workweek

Hourly Non-Exempt

Example 1: Employee earns $31,200 per year ($600/wk.) and works 40 hours per week

• Annual Salary ÷ 2080 = Hourly Rate • $31,200 ÷ 2080 = $15 per hour • $15 per hour × 40 hours = $600

Hourly Non-Exempt

Example 2: Employee earns $31,200 per year ($600/wk.) and works 45 hours per week

• $15 per hour × 40 hours = $600 straight time pay • $15 × 1.5 × 5 = $112.50 overtime pay • Total earnings = $712.50

Hourly Non-Exempt

Example 3: Employee earns $31,200 per year ($600/wk.) and works 45 hours per week

• Weekly Salary / (40 + (OT Hours × 1.5)) = Hourly Rate

• $600 / (40 + (5 × 1.5)) = $12.63 • $12.63 per hour × 40 hours = $505 straight time pay • $12.63 × 1.5 × 5 hours = $95 overtime pay • Total earnings = $600

Salaried Non-Exempt

Example: Employee earns $31,200 per year ($600 per week / $15 per hour) Employee works 36 hours

• Total earnings = $600 Employee works 40 hours

• Total earnings = $600 Employee works 45 hours

• Total earnings = $712.50 ($600 straight time pay + $112.50 overtime pay)

Fluctuating Workweek

Employee is paid a fixed amount as straight time pay for all hours the employee works in a workweek

Employee is paid overtime at the rate of ½ (rather than 1 ½) times the employee’s regular rate of pay

Employee’s hourly rate fluctuates depending on number of hours worked: the more the employee works, the lower the employee’s hourly rate

Fluctuating Workweek

• Employee’s hours must fluctuate from week to week

• Requires a clear mutual understanding

• Can be difficult to administer – employee’s hourly rate must be calculated each week

• Consult with counsel!

Managing the Changes

Control overtime hours • Adjust work hours to focus on critical periods • Flextime – not the same thing as comp time!

Redistribute workload • Hire additional employees • Push work to part-time employees • Use alternative workers

Breaking the News

Explain that a change in the law requires the organization to change the way it compensates certain employees.

Explain impact on pay and benefits – stress that employee will not experience any decrease in pay assuming employee continues to work same number of hours.

Emphasize that the change to non-exempt status is being driven by new OT rule and is not a demotion in any way.

Train employees on relevant policies (timekeeping, OT, breaks, etc.).

Compensating Non-Exempt Employees

Time worked Breaks Training and meetings Travel time

Time Worked

Basic principles: Employee must be paid for all time that the employee is

required to be on duty, on the employer’s premises, or at any other prescribed place of work.

This includes time that the employee is “suffered or permitted” to work – even if the employee is off the clock.

Copyright © 2016 CFODailyNews.com

Breaks

20 minutes or less Must be paid

30 minutes or longer Can be unpaid as long as the employee is completely relieved of duty (no answering phones or emails)

Training and Meetings

Must be paid unless all four of the following requirements are met: • Attendance is outside regular working hours • Attendance is voluntary • The training/meeting is not job related • The employee does not perform any productive work

during the training/meeting

Travel Time Compensable:

• Travel between job sites during the work day • Travel to another city for special one-day assignments (although

normal commuting time can be excluded) • Overnight travel, if during the employee’s normal work hours (on

a work or non-work day) Not Compensable:

• Normal home-to-work commuting, unless employee begins work prior to commuting

• Overnight travel, if outside the employee’s normal work hours (on a work or non-work day)

What the FLSA Does Not Require

Breaks Vacation/PTO, sick leave, holidays Extra pay for working nights, weekends or

holidays simply for working at those times Extra pay for working more than 8 hours in a day

Alternative Workers: Independent Contractors, Volunteers and Interns

Pros: • Flexibility • Not covered by FLSA and other employment laws

Cons: • If worker is misclassified, employer can be liable for

back pay, back taxes, lost benefits, contributions for unemployment insurance, fines and penalties

• Not covered by workers’ comp

Independent Contractors

Some factors: • Degree of control – How the job is performed vs. the

end result • Skill/independent judgment required • Who provides equipment/tools to do the job • Whether services rendered are an integral part of the

organization’s business • Length of relationship

Volunteers

A “volunteer” is someone who works freely without compensation or expectation of compensation.

• Employees cannot volunteer to perform the same or similar duties they are paid to perform as employees.

• Employers cannot direct employees to perform volunteer work during the employee’s normal working hours, even if the duties are not the same.

Interns

Six factors: 1. Internship is similar to training provided in an educational environment. 2. Intern is the primary beneficiary of the internship. 3. Regular employees are not displaced by the intern; instead, the intern

works under their close supervision. 4. Employer derives no immediate advantage from the internship; instead,

the internship may impede operations. 5. Intern is not necessarily entitled to a job when the internship ends. 6. Both the employer and the intern understand that the internship is

unpaid.

Questions?

For More Information:

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