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Committed People. Infinite Possibilities.
The DOL’s New Overtime Rules
The Impact of the New Rules and Compliance Preparation
Guest Presenter: Bruce JohansonPrincipal Partner, DB Squared
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Brian SharpChief Marketing Officer , HRsoft
Bruce JohansonPrincipal Partner, DB Squared
Guest Presenter
Talent Takeaways | Compensation Compliance
What We Will Cover:
Talent Takeaways | Compensation Compliance
Current wage laws, audits and litigation trends/insight
Current FLSA Basics Review
DOL’s new final exemption rule
Steps to ensure compliance for new rule by December 1, 2016
Facts & Figures around Litigation/Enforcement
Talent Takeaways | Compensation Compliance
• Number of audits conducted by DOL was an all-time high of a 42% increase in 2015, and 79% of these audits had FLSA violations.• Average cost for violations was $1,000 per employee
• More than a 500% increase in FLSA collective actions in federal court from 2001 to 2014. In 2014, 7,964 FLSA cases were filed.
• Wage & hour class/collective actions represent most of the federal and state employment law class/collective cases.• In 2014, the top ten Wage & Hour cases were settled at an
average award of over $21million.
FLSA Basics
Talent Takeaways | Compensation Compliance
• Fair Labor Standards Act (FLSA) – wage and hour issues governed by federal law
• FLSA Coverage – Enterprise or Individual Coverage• Enterprise - $500,000 in annual, gross receipts + Interstate commerce • Individual – Employee perform work interstate commerce (week)
• It is best to start with the assumption that all employees are non-exempt (eligible for overtime pay for all hours worked over 40 in a work week).
• Must also understand your particular state’s employment and wage law or acts which might be more stringent than federal law.
FLSA Basics
Talent Takeaways | Compensation Compliance
• TWO TESTS THAT ARE USED TO CLASSIFY A POSITION/JOB AS EXEMPT.
• Salary Basis Test• Paid on a salary-basis
• Meet Job Duties Tests• Vary by Exemption• Detailed
FLSA Basics Review
Talent Takeaways | Compensation Compliance
• Salary Basis Testo Exempt employees must be paid on a “salary basis.”o Current law requires salary to be at least $23,660 per year
($455 week)o Cannot be paid hourly wageso Currently, an employee is paid on a salary basis if he/she
regularly receives each pay period a predetermined amount constituting all or part of the employee’s compensation
o The amount is not subject to change, regardless of the quality or quantity of work performed in a given week.
FLSA Basics Exemptions Review (Job Duties Test)
Talent Takeaways | Compensation Compliance
• White Collar Exemptionso Executive o Administrativeo Professional
o Learned professionalso Creative professionalso Teachers in a school system
o Computer Employeeso Outside Sales Employeeso Others…
Executive Employees Exempt
• Salary:o $455 per week or equivalent
• Duties:o Primary duty is of the management of the enterprise or a
recognized department or subdivisiono Customarily and regularly directs the work of two or more
other employeeso Has authority to hire or fire other employees (or
recommendations as to hiring, firing, promotion or other change of status of other employees are given particular weight.
Talent Takeaways | Compensation Compliance
Administrative Employees Exempt
• Salary:o $455 per week or equivalent
• Duties:o Primary duty of performing office or non-manual work
directly related to the management or general business operations of the employer or the employer’s customers.
o Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Talent Takeaways | Compensation Compliance
The Learned Professional Employee Exemption
• Salary:o $455 per week or equivalent – paid in salary or fee basis
(as defined in the regulation)
• Duties – primary duty test has 3 elements:o The employee must perform work requiring advanced
knowledge;o The advanced knowledge must be in the field or science
or learning; ando The advanced knowledge must be customarily acquired
by a prolonged course of specialized intellectual instruction.
Talent Takeaways | Compensation Compliance
Three Categories of Professional Employees - FLSA
o Employees in a field of science/learning, including lawyers, doctors, nurses, CPA’s architects, engineers, etc.
o Employees performing work that is original and creative in character, such as artists, musicians, designers, etc.
o Teachers in an educational establishment.
Talent Takeaways | Compensation Compliance
Creative Professional Employees Exempt
• Salary:o $455 per week or equivalent
• Duties:o Primary duty of performing work requiring invention,
imagination, originality or talent in a recognized field of artistic or creative endeavors.
• Examples:o Actors, Musicians, Composers, Novelists,
Conductors, Soloists, etc.
Talent Takeaways | Compensation Compliance
Computer Employees Exemption
• Salary:o $455 per week or equivalent
• Duties:o Primary duty of:
• (A) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional applications, or
• (B) design, development, documentation, analysis, creation testing, or modification of computer systems or programs including prototypes bases on and related to user or system design specifications; or
• (C) design, documentation, testing. Creation or modifications of computer programs related to machine operating systems; or
• (D) a combination of duties described in (A), (B), and (C), the performance of which requires the same level of skills.
Talent Takeaways | Compensation Compliance
Outside Sales Employee Exemption
• Salary:o $455 per week or equivalent
• Duties:o The employee’s primary duty must be making sales (as
defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
o The employee must be customarily and regularly engaged away from the employer’s place or places of business.
Talent Takeaways | Compensation Compliance
Highly Compensated Employee Exemption• What are “highly compensated” employee?
• If employee earns total annual compensation of at least $100,000, the employee will be deemed exempt as long as the employee regularly performs at least one of the exempt duties of an executive, administrative, or professional employees.
• The total annual compensation must include at least $455/week paid on salary basis. Reminder may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation.
• Applies only to those employees performing office or non-manual work.
Talent Takeaways | Compensation Compliance
DOL’s New Final Overtime Rules
Talent Takeaways | Compensation Compliance
DOL’s New Final Overtime Rules
Published in Federal Register on July 6, 2015 – Released on June 30, 2015
60-day comment period ended on September 4, 2015 – Silence until…
Final Rule issued by DOL on May 17, 2016 – Effective December 1, 2016
Talent Takeaways | Compensation Compliance
DOL’s New Final Overtime Rules Increases the minimum salary to $47,476/year (or
$913/week under the salary-basis test. This is what the DOL believes will be the 40th percentile of weekly earnings for full-time salaried workers in 2016 (located in South) based on 2013 data from the Bureau of Labor Statistics.
Increases the total annual compensation of the highly compensated employee to $134,034/year. This is the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.
Talent Takeaways | Compensation Compliance
DOL’s New Final Overtime Rules NEW ASPECT: allows incentive pay (non-discretionary
bonuses, commissions, etc.) to satisfy up to 10 percent of the minimum salary level. Example $42,728 base salary + at least $4,748 incentive pay = $47,476
Must earn at least $4,748 by year-end or a year-end “catch-up” will be required.
Base salary figure will be automatically adjusted every three years beginning January 1, 2020.
Talent Takeaways | Compensation Compliance
DOL’s New Final Overtime Rules
Doesn’t change the Job Duties Test! But DOL is seeking comments on the necessity of adjusting the job duties test in light of the changes to the salary level test.
For example, to what extent are exempt lower-level executive employees performing non-exempt work?
Should exempt level primary work constitute a significant amount of the overall work performed?
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule - Impact
• As of December 1, 2016: Raise current classified exempt employees to the new
minimum amount, or Reclassify exempt to non-exempt and pay them
overtime pay.
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule - Options
• Options for employers included: Move exempt employees up to new required salary and
increase to keep exempt status every 3 years; Keep salaried without any raise, but make non-exempt
(fluctuating workweek) and pay overtime; Pay non-exempt workers as pay hourly with overtime;
and/or Adjust workforce, schedules, work duties, etc.
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule – Action Plan
Determine if you have properly classified your current exempt employees: Estimate number of hours worked and cost to bring
exempt employees up to the new salary basis figure. Based on the job duties test, are your exempt
employees performing the exempt level duties? Do the current job descriptions encompass these duties? If the duties test changes in the future, are you prepared
to move more exempt employees to non-exempt employees?
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule – Action Plan
Do you have the formalized policies and practices to avoid investigations and lawsuits?o A way to keep records of time worked – employees kept
with discipline for falsifying time records; signed time cards/sheet with paychecks checked by employees to verify accurate time paid
o Pre-authorization of any overtime worked – unauthorized subject to discipline
o Remote work issues (phone, emails, computer, etc.)o Track “off the clock” time and discipline for abuse
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule – Action Plan Training/Work Ahead before December 1, 2016
o HR/Accounting/Payrollo Training Supervisors on new policies/practices –
determine if employees are working reported and unreported hours
Recordkeeping o Payroll records and backup documentation as much as
5 years minimum or longero DOL can inspect records within 72 hours of notice to
audit
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule
Questions?
Talent Takeaways | Compensation Compliance
DOL’s New Final Rule
Thank you for allowing us to present to your group today and hope the rest of 2016 is great for each
of you. If we can help you with your Compensation/HR needs, please email me at:
Talent Takeaways | Compensation Compliance
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