DOL s Rule On Overtime

Transcription

1 DOL s Rule On Overtime (aka) White Collar Exemptions Under FLSA Michael Ripley VP of Employment, Labor and Healthcare Policy Sources of Slides: US Chamber & Bose Law Firm

2 Contents Slides 2-10: Current Law Slides 11-14: Transition Slides 15-22: Final rule Slides 23-35: Implementation Slide 36-37: Future

3 White Collar Exemption 1938 Minimum Wage and Overtime Exemption for Bona Fide: Executive Administrative Professional Computer Outside Sales

4 3 Tests for Exemption Salary level Paid minimum salary level/threshold: $455 per week ($23,660 annual) Salary basis Has to be guaranteed: quid pro quo on exempt vs. non-exempt Duties Job duties classified as exempt

5 Executive Management of enterprise, department or subdivision (primary duty) Regularly directs more than one employee Hire, fire, promote or able to recommend such changes Examples: executives, dept. heads, managers, supervisors

6 Administrative Primary duty consists of office or non-manual Directly related to management or general business operations Primary duty includes exercise of discretion and independent judgement regarding matters of significance Examples: decision makers in functional areas, accounting, human resources, employee benefits, safety and health, information technology

7 Professional Learned professionals Primary duty consists of advanced knowledge in science or learning acquired by prolonged course of specialized intellectual instruction Examples: engineers, architects, CPAs, registered nurses, etc.

8 Creative Professional Primary duty consists of performance of work requiring: invention, imagination, originality or talent in a field of artistic or creative endeavor, such as music, writing, acting or graphic arts No specific educational requirement related to creative professionals (unlike learned professionals exemption) Examples: actors, musicians, graphic artists, journalists

9 Computer Primary duty consists of application of systems analysis and procedures, including consulting with users to determine: hardware, software or system functional specifications; design, development, documentation, analysis, creation, testing or modification of computer systems or programs; or a combination of duties the performance of which requires the same level of skills Can still pay on hourly basis at $27.63, but $913 on salary basis

10 Outside Sales Primary duty consists of making sales or obtaining orders of contracts for services or use of facilities and Customarily and regularly engaged away from employer s place of business in performing primary duties

11 Rule Making Process March 2014: Memorandum President to Secretary Labor Perez Directed to propose revisions to overtime regulations Summer 2014: Sec. Perez held listening sessions with stakeholders and U.S. Chamber members July 2015: Wage & Hour Administrator Weil issues NPRM changes September 2015: Comment period closed

12 Rule Making Process (Continued) March 2016: DOL sends final rule to White House Office of Management and Budget (Final redline before publication) May 2016: publishes rule December 1, 2016: effective date

13 U.S. Chamber Comments Acknowledged increase in salary level due $50,000 way too high, Tammy McCutchen in 2004 Suggested 3-5 year phase-in Supported counting bonuses, but: Commissions should also count Bonuses paid quarterly or annually should count Should not be limited to 10%

14 U.S. Chamber Comments Strongly opposed annual increases Not authorized by FLSA (Continued) Imposes increase, no employer input or rule-making process Objected to any changes in duties test Because of DOL s failure to provide sufficient notice

15 DOL Final Rule No change to salary basis No change to duties test No change in definition of primary duty No change to concurrent duties provision (exempt and non-exempt duties) Big win Looking at California statute to implement

16 Minimum Salary Level (MSL) $913 per week: ($47,476 annualized) Doubled Up from $455 per week ($23,660 annualized) Down from proposed $50, th percentile of FT non-hourly paid employees in lowest-wage census region (South) Don t want to pay overtime get to $913

17 Bonuses & Commissions Non-discretionary bonuses, incentive payments and commissions can satisfy up to 10% of MSL Paid at least quarterly Discretionary bonuses not included

18 Bonus & Commission How Works? Each work week Exempt employee paid 90% of MSL: $ ($42, annualized) End of quarter Calculate salary plus commissions if you are = to or > $11,689 (1/4 of $47,467), then you are ok! If less than, and you want to maintain exemption makeup shortfall and pay next pay period Employee leaves in the middle of quarter?

19 Highly Compensated Employees (HCE) Total annual compensation requirement needed to exempt HCE From $100,000 to $134,004 Originally proposed $122,000 Set at 90 th percentile

20 Automatic Salary Levels Increases every three years, starting Jan. 1, 2020 DOL to provide new salary levels at least 150 days before effective date of 1/1/20 Levels based on BLS current population survey from second quarter year preceding update MSL salary 40 th percentile of lowest wage census region HCE 90 th percentile of FT non-hourly workers nationally

21 DOL Estimates 4.6 million salaried workers currently classified exempt will become non-exempt Approximately 36,000 HCE would lose exemption Cost to business: $1.25 billion Almost every employer impacted

22 Effective Date December 1, 2016 Need to notify employees in advance WARNING: Health care providers who provide Medicaid services must comply also No enforcement notice from DOL to small health care Employer (15 beds or less) but employee can still bring private right of action

23 Compliance Challenges Employers Face 1. Identify those who need to be reclassified Exempt before, now non-exempt Pay overtime 2. Develop new compensation plan for reclassified employees Piles of money? Current salary level plus overtime

24 Compliance (continued) 3. Review wage and hour policies and processes 4. Communicate changes to employees 5. Train reclassified employers and managers

25 Need to Identify Jobs for Reclassification Salaried exempts below $47,476 annually/ $913 weekly Or $42, annual, with at least $4, in bonuses May want to consider a job duty review Rare opportunity

26 Job Review Process May want to consider with attorney (client privilege) Review HR data: salaries, bonuses, direct reports, educational degrees Review documents: job descriptions, training materials, perf. expect. Interview managers: What do employees do in particular jobs? Legal analysis if duties qualify for exemption: HR or counsel

27 Compensation Plan Design Should we continue to pay reclassified employees on a salary or convert to hourly? Should we adjust the salary level downward or adopt hourly rate that will minimize additional costs? How will we calculate overtime for salaried non-exempt employees? Divide salary by 40 Divide salary by actual hours Fluctuating Continue incentive compensation? Do we need to make changes to benefits?

28 Plan Design Considerations Salary increase or overtime Pull salary and incentive pay data Calculate cost: cheaper to increase salary to $47,476 or overtime? Consider lowering incentive pat to offset salary increase Accurate assessment of hours expected to work Examples: divide by 40 method a) $40,000 salary at 10 hours overtime = $55,000 annually b) $35,000 salary at 5 hours of overtime = $41,465 annually

29 Option: Cost Neutral Set hourly rate to produce same cost to business This gets salary employees to hourly with same compensation Best approach so labor costs don t increase This one will get complaints from employees that work less overtime

30 Cost Neutral: Formula WS / [40 + (OT x 1.5)] Weekly salary divided by 40 (hrs.) plus (overtime times 1.5) Example: Using annual salary of $40,000 (Rounding to $770/week) 770 / [ 40 +(10 x1.5)]= 770/ 55 =14.00 Hourly Rate: $14.00 Overtime Rate: $ x 40 = x 10 = Hrs = $770

31 Option: Fixed Salary Fluctuating Work Week Secure expert advice on this!!! 3 requirements: guaranteed weekly salary; hours must fluctuate; hourly rate at least minimum wage rate Overtime is a half-time rate DOL suspicious because it is based on a regular rate that diminishes as work week increases Playing with fire if you use this method and it only fluctuates above 40 hours never below

32 Fixed Salary Fluctuating Work Week: Example Assume $700 week guaranteed salary Example: assume 50 hour week of work 700/50 = $14 per hour 10 hours of overtime owed (14/2) x 10= $70 Total Weekly Earnings = $770 Example: Assume 45 hour work week 700/45 = $15.56 per hour 5 hours of overtime owed (15.56/2) x 5 = $38.90 Total Weekly Earnings = $738.90

33 DOL Expects Employers to: Raise salary to $913 per week Set hourly rate consistent with current salary

34 Review Policies & Processes Policies No off the clock work any longer Work at home, etc. Travel time to work-required conferences Processes Time keeping Payroll changes Controlling overtime hours

35 Communicate Changes Senior management, managers of reclassified employees and employees Who will communicate changes? What, How, When Talking points, FAQs

36 Training Reclassified Employees and Managers Wage and policies Timekeeping procedures Activities that are compensable work

37 Path to Stop or Modify Protecting Workplace & Opportunity Act (S 2707 and HR 4773) Nullify rule Requires economic analysis and prohibits auto increases and duties test changes without notice Wouldn t stand up to Obama veto Litigation challenges Possible but only to high salary level and auto increases Plano Chamber Texas Association of Business & US Chamber Twenty-one state suit (Indiana is a party to)

38 Path to Stop or Modify Clinton Administration No change Trump Could restart regulatory process Likely limited to auto salary increase, difficult salary increase

39 Path to Modify Reality: This isn t going away Get prepared, as this process will take time

40 Q & A