Q: What are the requirements for employees to be salaried vs hourly? (Several similar questions were submitted)

Transcription

1 William H. Fallon The materials and information have been prepared for informational purposes only. This is not legal advice, nor intended to create or constitute a lawyer-client relationship. Before acting on the basis of any information or material, readers who have specific questions or problems should consult their lawyer Miller Johnson. All rights reserved. 1

2 Enacted September 5, 2018 Presently $9.25 per hour January 1, 2019: $10.00 January 1, 2020: $10.65 January 1, 2021: $11.25 January 1, 2022: $12.00 January 1, 2023 and beyond: adjusted annually based on the consumer price index 3 Q: What are the requirements for employees to be salaried vs hourly? (Several similar questions were submitted) A: Forget about salaried vs hourly Change your vocabulary forever Use Exempt vs Non-exempt And make that your focus Miller Johnson. All rights reserved. 2

3 The law says every employee is entitled to overtime pay if he or she works more than 40 hours in a workweek... Unless the employer can prove that the employee meets the specific requirements of one of the Overtime Exemptions established by law 5 So what about salaried employees? SALARIED does not mean NO OVERTIME PAY Salaried is simply a description of a pay rate A salaried employee can be entitled to overtime pay So can employees paid by commission, piece rates, day rates, job rates, etc Miller Johnson. All rights reserved. 3

4 For an employee to be exempt from overtime pay: 1. The employee s primary job duty must meet the specific requirements of one of the statutory exemptions, and 2. The employee s pay must meet specific requirements The burden of proving an exemption is on the employer 7 Five Categories of White Collar Exemptions 1. Executive employees 2. Professional employees 3. Outside sales employees 4. Computer professionals 5. Administrative employees To evaluate whether a position is exempt, follow this list in order from the clearest test to the foggiest Miller Johnson. All rights reserved. 4

5 1. The Executive Exemption Applies to department managers, supervisors, officers, executives To qualify, an employee must: Have the primary duty of management of the business, or a recognized department or subdivision; and Regularly supervise two or more FTEs; and 9 Have authority to Hire or fire, or Make suggestions about hiring, firing, promotion, or other status changes that are given particular weight; and Be paid on a salary basis at least $455 per week Miller Johnson. All rights reserved. 5

6 2. Learned Professionals To qualify, an employee must: Have the primary duty of work that Requires advanced knowledge in a field of science or learning, usually through a prolonged course of specialized education Is predominately intellectual in character, and Requires the consistent exercise of discretion and judgment; and Be paid on a salary or fee basis at least $455/wk Learned Professionals Limited to professions where specialized academic training is a standard prerequisite for entering the profession Medicine, pharmacy, theology, accounting, teaching, architecture, law, engineering, and physical, chemical or biological sciences As distinguished from the mechanical arts or skilled trades Miller Johnson. All rights reserved. 6

7 Technical experts generally do not qualify Technologists and technicians, such as engineering technicians, ultrasound technologists, licensed veterinary technicians, avionics technicians and other similar employees generally do not meet the requirements for the learned professional exemption. (US DOL) Creative Professionals Musicians Composers Conductors Novelists Screen writers Actors Painters Photographers Miller Johnson. All rights reserved. 7

8 3. Creative Professionals To qualify as a creative professional, an employee must: Have the primary duty of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor and Be paid on a salary basis or fee basis, not less than $455 per week Outside Sales Employees The employee must: Have the primary duty of making sales or obtaining orders or contracts for which the client or customer will pay; and Be regularly engaged away from the employer s place of business. ( Inside sales does not qualify) No salary basis requirement Miller Johnson. All rights reserved. 8

9 5. Computer Professionals The employee must Be a computer systems analyst, computer programmer, software engineer or other similarly skilled worker; and Have the primary duty of systems analysis, or the design, development, documentation, analysis, creation, testing or modification of computer systems or programs; and 17 Be paid on a salary basis or fee basis at least $455/week, or on an hourly basis at least $27.63/hour. Technicians, installers, trainers, help desk support, etc., do not qualify Miller Johnson. All rights reserved. 9

10 6. Administrative Employees The employee must Have the primary duty of work that is Non-manual or office work, and Directly related to the management or general business operations of the employer (or its customers); and Exercise discretion and independent judgment with respect to matters of significance; and Be paid on a salary basis or fee basis, not less than $455/week 19 Beware: Apply the Administrative Exemption with caution. It is not so broad as its title might suggest Miller Johnson. All rights reserved. 10

11 Management or General Business Operations Refers to work that is directly related to the running or servicing of the business itself As distinguished from the production or sale of the employer s products or services Includes areas such as: tax, finance, accounting, budgeting, auditing, insurance, quality control, purchasing, advertising, marketing, research, safety and health, human resources, public relations, legal and regulatory compliance 21 Discretion and Independent Judgment Compares and evaluates possible courses of conduct; makes a decision after considering various possibilities Has authority to make an independent choice or recommendation, free from immediate direction - even if choice or recommendation is reviewed by a superior Requires more than the use of skill in applying well-established techniques, procedures or standards, like those from manuals or other sources Miller Johnson. All rights reserved. 11

12 What are Matters of Significance? Developing, implementing, or interpreting management policies or operating practices Committing the employer in matters that have significant financial impact Deviating from established policies and procedures without prior approval Negotiating and binding the company on significant matters Carrying out major assignments in conducting the operations of the business 23 Matters of significance Providing consultation or expert advice to management Performing work that affects a particular segment of the business to a substantial degree Planning long- or short-term business objectives Investigating and resolving matters of significance on behalf of management or Representing the company in handling complaints or resolving grievances Miller Johnson. All rights reserved. 12

13 Examples: Employees who qualify for the administrative exemption An employee who leads a team of other employees assigned to complete major projects Human resource managers who formulate, interpret or implement employment policies Purchasing agents who have the authority to bind the company on significant purchases Management consultants who study the operations of a business and propose changes in organization 25 Examples: Employees who do not qualify for the administrative exemption Employees performing inspection work using established techniques and procedures Human resource clerks who screen applicants to obtain data regarding minimum qualifications for employment Examiners who perform work involving comparison of products with established standards Inside salespersons Miller Johnson. All rights reserved. 13

14 Q: What are the requirements to deduct from an exempt employee s salary for time off? The Salary Basis test applies to the most of the White Collar exemptions, other than Outside Sales. 27 Salary basis means: A predetermined amount of compensation each pay period on a weekly, or less frequent, basis; Which cannot be reduced because of variations in the quality or quantity of the employee s work. The employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked Miller Johnson. All rights reserved. 14

15 Q: Can an exempt employee be paid overtime? Yes, as long as the employee receives the required salary 29 Q: What deductions from an exempt employee s salary are permitted? A: Beware of deductions from salary basis pay: If the employer makes improper deductions from the predetermined salary, that employee is not paid on a salary basis If the employee is ready, willing and able to work, deductions may not be made for time when work is not available Miller Johnson. All rights reserved. 15

16 A: Permissible deductions from an exempt employee s salary 1. For full-day absences for personal reasons other than sickness or disability; 2. For full-day absences due to sickness or disability, if the deduction is made under a bona fide sick pay policy (even if paid sick days have been exhausted); 31 A. Permissible deductions from exempt salary 3. To offset jury fees, witness fees, or military pay 4. For good-faith penalties for violations of major safety rules 5. For good-faith full-day disciplinary suspensions for workplace conduct rule infractions 6. For unpaid FMLA leave and 7. When a partial week is worked in the first or last week of employment Miller Johnson. All rights reserved. 16

17 Examples of improper deductions A deduction of a day s pay because the employer was closed due to inclement weather; A deduction for a two-day absence due to illness, when the employer does not provide sick pay for such absences; and A half day pay deduction for an absence due to personal reasons. (Only full day deductions are allowed.) 33 Examples of improper deductions A deduction of a day s pay because the employer was closed due to inclement weather; A deduction for a two-day absence due to illness, when the employer does not provide sick pay for such absences; and A half day pay deduction for an absence due to personal reasons. (Only full day deductions are allowed.) Miller Johnson. All rights reserved. 17

18 What is the effect of improper deductions from an exempt employee s salary? If the employer has an actual practice of making improper deductions from salary basis pay, the overtime exemption is lost during any period when similarly-situated employees were subject to deductions. Isolated or inadvertent deduction errors will not result in loss of the exemption if the employer reimburses the employee for the improper deductions. 35 The Safe Harbor If the employer 1. Has a clearly communicated policy that prohibits improper deductions and includes a complaint mechanism 2. Reimburses employees for any improper deductions 3. Makes a good faith commitment to comply in the future, then the employer will not lose the overtime exemption Miller Johnson. All rights reserved. 18

19 -- unless the employer willfully violates the policy by continuing the improper deductions after receiving employee complaints. So you need a safe harbor policy statement 37 It is ABC Company s policy and practice to pay employees in compliance with federal and state law. The Company prohibits improper deductions from employee wages or salaries, and will correct any mistakes or improper deductions. If you believe that a mistake or improper deduction has been made, you should report this immediately to the Human Resources Department. The Company will correct any improper deduction promptly, and will take steps to ensure future compliance Miller Johnson. All rights reserved. 19

20 Q: What s the status of the Department of Labor s White Collar Overtime Rule? Under the Obama administration, DOL issued a rule increasing the salary basis minimum from $24,000 to $47,000. That rule was struck down by federal courts. A: DOL reportedly will issue a proposed new rule, with a soft target of early Little reliable information on what might be in it. Likely no new final rule before late Q: What do you do if an employee discloses that she took work home and did not report that time on her time sheet? Q: What are the rules for non-exempt employees that have access to company s on their phones? Are they on-the-clock for every text message received or sent? Q: What is the best way to document after-hours work? Miller Johnson. All rights reserved. 20

21 41 The answers to these questions all turn on the concept of Hours Worked, because: Employees are entitled to pay for all Hours Worked Employees are entitled to overtime pay when Hours Worked exceed 40 in a workweek Miller Johnson. All rights reserved. 21

22 Definition of Hours Worked: If the employer knew or should have known that the employee was performing work, then the time qualifies as Hours Worked and must be paid Also referred to as compensable time 43 Q: What do you do if an employee discloses she took work home and did not report that time on her time sheet? A: 1. Give the employee written instruction on whether she is allowed to take work home 2. Give written instruction a) that employees are to record authorized workat-home time (and any other off-the-clock work) and b) on the method for doing so Miller Johnson. All rights reserved. 22

23 3. Instruct the employee to record the time by the method you have established; confirm in writing. 4. If the employee was allowed to take work home, pay her for the time you believe she worked - If she works at home again without recording the time as required, take corrective action as you would for a violation of a different rule, policy or instruction 5. If the employee was not allowed to work at home (or otherwise off-the-clock ), tell her not to do it again - or corrective action will follow - And take corrective action if it happens again 45 Q: What are the rules for non-exempt employees that have access to company s on their phones? Are they on-the-clock for every text message received or sent? A: If a manager or supervisor knew or should have known that the employee was reading or sending work-related messages after working hours, then the employee s time is hours worked and it must be paid Miller Johnson. All rights reserved. 23

24 What to do about it? If non-exempt employees can access their business messages outside working hours: 1. Provide each non-exempt employee with clear written instruction on whether he or she is permitted or required to read, respond to, or send work-related messages outside work hours 2. Provide instruction and a method for employees to record the time spent on business-related messaging 3. For violations of these instructions, follow the previous instructions about corrective action 47 Q: Calculating overtime pay Over 8 hours per day OR over 40 hours per week? What if a vacation day puts the employee over 40? Is it common for companies to include special benefits (bereavement pay, vacation pay, holiday pay) in calculating overtime? Are Sundays mandatory time and a half or double time? Miller Johnson. All rights reserved. 24

25 More questions about overtime pay Does a quarterly bonus (% of gross pay) based on profitability have to be included in calculating overtime pay? When do bonus and incentive payments have to be included in calculating overtime pay? How is overtime pay affected by commissions paid under several different commission plans? How does a shift premium affect overtime pay, when the employee works an extended off shift? 49 Key concept #1: The Workweek The employer must pay overtime for hours worked in excess of 40 hours during a given workweek There are some exceptions for health care facilities, police and fire departments, and others The workweek is a period of 7 consecutive 24- hour periods e.g., Monday through Sunday Regardless of the employer s payroll schedule Miller Johnson. All rights reserved. 25

26 Key Concept #2: The Regular Rate of Pay Overtime pay must be one-and-one-half times the employee s regular rate The regular rate is always an hourly amount But often it is not the employee s assigned hourly wage 51 The regular rate must be determined according to overtime law Cannot be set by employer-employee agreement The regular rate of pay must include the hourly wage rate plus other earnings attributable to that work week Miller Johnson. All rights reserved. 26

27 Payments that must be included in calculating the regular rate: Most bonuses Awards or incentives for efficiency, quality, attendance, safety, housekeeping, service, performance, etc. Commissions, piece rates Shift differentials or premiums Tip credits Payments for meals, lodging, facilities, customarily made and voluntarily accepted by the employee 53 Payments that may be excluded in calculating the regular rate: Discretionary bonuses (discretionary both as to the fact of payment and the amount), gifts Pay for time not worked Holiday pay, vacation pay, PTO, sick pay On-call pay (if the on-call time is not hours worked ) Premium payments for time worked, if at least time-and-a-half ( clock overtime ) Miller Johnson. All rights reserved. 27

28 The Regular Rate of Pay = All earnings for work performed in the workweek (with specified exclusions) Total hours worked in the workweek This is a workweek by workweek calculation Total Overtime Pay = 1.5 x Regular Rate Overtime Premium = 0.5 x Regular Rate 55 Questions about compliance Where do we find FLSA auditors to ensure our exempt status individuals are truly exempt? Would you encourage employers to complete the Payroll Audit Independent Determination (PAID) on a regular / recurring basis? How do we maintain compliance? Miller Johnson. All rights reserved. 28

29 Q: How does a blended rate overtime calculation work? A: This applies to an employee who performs work at two or more different pay rates during the same workweek. Overtime pay is calculated based on the weighted average of the employee s regular hourly rate for the workweek. 57 Example: In one workweek, Employee does 30 hours of electrical work at $25 per hour and 15 hours of warehouse work at $16 per hour Total straight time pay: 30 hrs x $25 = $750; 15 hrs x $16 = $240; total = $990 Regular Rate = total straight time pay / total hours = $990 / 45 hrs = $22 per hour Overtime premium = one half of weighted average for each OT hour: $22 x 0.5 x 5 OT hours = $55 Total pay (straight time plus OT) = $ Miller Johnson. All rights reserved. 29

30 Alternative: for an employee with two or more jobs with different bona fide hourly rates By agreement in advance, the employee may be paid one-and-a-half times the straight time rate for the work that was performed during the overtime hours. Can you identify which type of work the employee was performing during the overtime hours? 59 Q: Please explain the rules for compensating non-exempt employees for travel time A: There are several, and they re not always clear Miller Johnson. All rights reserved. 30

31 1. Home to Work Travel: This is your commute to work It is almost never hours worked Nor is travel from home to airport or train Nor is the return from work to home Travel that is All in the Day s Work Between different work locations during the workday Is always compensable time Miller Johnson. All rights reserved. 31

32 3. Travel from Home in Emergency Situations Employee suddenly called to travel a substantial distance to perform an emergency job for employer; all travel time is compensable 4. Transporting People or Equipment for Business Purposes Driver s time is compensable, or hours worked Special One-Day Assignment in Another City Employee regularly works at a fixed location Sent on a special one-day assignment out-of-town A trip that is out of the ordinary for this employee Time spent traveling to the assignment and back is hours worked Miller Johnson. All rights reserved. 32

33 6. Overnight Travel Out of Town The portion of travel time that cuts across the employee s normal work day is hours worked If the employee regularly works 8am to 5pm, then travel during those hours (even on weekends) is compensable Commuting in an Employer-Provided Vehicle Commuting time is not compensable if: The use of the vehicle for travel is within the normal commuting area for the employer's business and The use of the vehicle is subject to an agreement between the employer and the employee Miller Johnson. All rights reserved. 33

34 DOL travel time regulations are old, vague, fail to address many situations, and don t always make sense If your non-exempt employees travel for work, you need to know the rules that apply to their type of travel 67 Q: What is the status of the paid sick leave law? A: Michigan s new Earned Sick Time Act Enacted September 5, Miller Johnson. All rights reserved. 34

35 Employees accrue at least one hour of paid sick time for every 30 hours worked Employers must provide at least 72 hours of paid sick time per year; 40 hours if < 10 employees Employee who exhausts the annual minimum for paid sick time gets an additional 32 hours of unpaid earned sick time 69 Employees must be able to use accrued paid sick time for: The employee s health The employee s family member s health The employee or employee s family member s need for time to deal with domestic violence including time to relocate and attend court proceedings Meetings at a child s school related to the child s health, disability, of effects of domestic violence or sexual assault Miller Johnson. All rights reserved. 35

36 Employer s exiting vacation, sick or PTO policies can satisfy the act s requirements, as long as those policies Allow employees to use the time off for the purposes provided by the Act; and Allow employees to accrue paid sick time at no less than the minimum rate and minimum amounts provided by the Act 71 Employers may require medical documentation in some cases Employers may require advance notice in some cases Employers may not retaliate for employee s use of paid sick time Employees or the State may file suit for violations of the Act By April 1, 2019, employers must notify all employees of the employer s sick time policy Miller Johnson. All rights reserved. 36

37 Questions about employees in other states Q: How do we comply with California? Q: We have employees in many states. How do we keep up with the overtime and timekeeping laws in those states? 73 Bill Fallon millerjohnson.com 45 Ottawa Ave SW Suite 1100 Grand Rapids, MI W Michigan Ave Suite 200 Kalamazoo, MI Miller Johnson. All rights reserved. 37