Preparing for the FLSA White Collar Exemption Changes. Building a Smarter Workforce

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2 Preparing for the FLSA White Collar Exemption Changes Building a Smarter Workforce

3 The Fair Labor Standards Act (FLSA) Fair Labor Standards Act Federal $7.25 hr Tipped $2.13 hr in direct wages Minimum Wage and Overtime Pay Recordkeeping Equal Pay Act Child Labor Laws Vermont $9.60 hr Tipped $4.80 hr in direct wages Exempt vs Non-exempt Classifications 3 Building a Smarter Workforce

4 Differences Exempt Minimum Salary* Must be paid on a salary basis Exemption Test (Duties) Tracking of work time is not required by FLSA, You can require it Not protected by FLSA min wage and overtime laws Non-Exempt Paid hourly OR salary Any hours worked over 40 requires an overtime calculation Protected by FLSA min wage and Overtime regulations A LOT More Recordkeeping requirements *exception for Outside Sales exemption

5 Current - Exempt White Collar Exemptions Minimum Salary - $455 per week $23,660 annual No Prorating Duties tests Executive Administrative Professional Learned Creative Computer Outside Sales Making $100,000 or more; Can be exempt under a Highly Compensated Exemption No manual labor Customarily and regularly perform any one or more of the exempt duties identified in the tests for the executive, administrative or professional exemptions 5 Building a Smarter Workforce

6 Exemption (Duties) Tests EXECUTIVE $455 per week minimum Primary duty of the management of the enterprise or a recognized department or subdivision. Customarily and regularly directs the work of two or more full time employees or their equivalents. 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). ADMINISTRATIVE $455 a week minimum Primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer s customers. Exercises discretion and independent judgment with respect to matters of significance LEARNED PROFESSIONAL $455 week minimum Primary duty of the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. Advanced knowledge must be in the field of science or learning. Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction 6 Building a Smarter Workforce

7 More Exemptions CREATIVE PROFESSIONAL $455 week minimum Primary duty of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor. COMPUTER PROFESSIONAL $455 week minimum OR $27.63 hr Employed as a computer systems analyst, computer programmer, or software engineer or other similarly skilled worker in the computer field performing the following duties: (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, based on and related to user or system design specifications; or (C) design, documentation, testing, creation or modification 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. OUTSIDE SALES No minimum salary required Primary duty of making sales; (any sale, exchange, contract to sell, consignment for sales shipment for sale or other disposition. It includes the transfer of title to tangible property, and in certain cases of tangible and valuable evidences of intangible property) or of obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. The employee must be customarily and regularly engaged away from the employer s place or places of business. The duties tests remain unchanged. For more information on the duties test Click Here. 7 Building a Smarter Workforce

8 Changes. Minimum salary level has changed to $913/week ($47,476 per Year) All employees that are classified as exempt must pay this minimum salary level and meet the applicable duties test to remain exempt from overtime pay. No Pro-rating of salary for part time - The minimum salary level will automatically increase every 3 years This increase will happen automatically based on 40 th Percentile of FT Salary workers in the Lowest Wage Census Data Region (currently in the South) $51, Building a Smarter Workforce

9 Important Information Effective date is December 1, Employers should be reviewing their current workforce to analyze the impact this change will have on their organization. Highly Compensated Employee (HCE) Exemption is now $134,004 annually. This increased from the current amount of $100,000. For more information on Highly Compensated Employee Exemption Click Here. Employers are allowed to include in the calculation of the minimum annual salary non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement. Must have established policies on how non-discretionary bonuses and incentive pay is earned. This must be earned and paid on a quarterly basis at minimum. The Federal DOL has released a Question & Answer website to help with the initial questions you may have. You can access that link here. 9 Building a Smarter Workforce

10 What should you do right now to prepare? Make sure your management understands this is coming and it could potentially WILL disrupt business operations. Potential of reclassifying a lot of employees Compare the costs of giving raises to employees who are currently exempt but make less than $47,476 per year VS the cost of reclassifying those employees as nonexempt and paying them overtime, given the number of hours those employees are currently working. same rate of pay? Or lower? Recordkeeping requirements 10 Building a Smarter Workforce

11 Examples Example One: Example Two Currently Exempt Currently Exempt Salary $45, hrs per week Salary $35, hrs per week $ per week $ per week Change of status to Non Exempt Paid Salary Change of status to NonExempt Paid Current Salary Non Exempt $ per week Non Exempt $ per week $ plus 10 hrs ot $ plus 5 hrs ot $ 1, total $ total $ 56, annualized $ 39, annualized $ per hr (at 40 hrs) $ per hr (at 40 hrs) Change of status to NON-Exempt Change of status to NON-Exempt AND changing to hourly rate of pay AND changing to hourly rate of pay Salary/50 hrs per week $ Salary/45 hrs. per week $ hrs regular time $ hrs regular time 10 hrs OT $ hrs OT Total Pay $ Total Pay Annualized $ 49, Annualized 11 Building a Smarter Workforce $ $ $ $ 42, Question: If you don t track your exempt employees hours, how do you do this calculation?

12 What should you do right now to prepare? Run a report of exempt employees and their salaries Is anyone close to the new $47,476 minimum salary now? How will you handle the increase in minimum salary? Budgeting, changing to non exempt position? How will you handle employee morale issues? Key points: The minimum salary is for a work week Not dependent on hours scheduled to work No pro-rating for part time employees in exempt positions 12 Building a Smarter Workforce

13 What should you do right now to prepare? Do a self audit of your current exempt positions Do they meet the current exemptions tests? Opportunity to correct now! Are there any positions you are unsure of? Pull those to be reviewed by legal counsel Examine your job descriptions! If truly exempt under which exemption? REMEMBER job TITLES don t matter it s the actual DUTIES of the job. Prepare your managers! They should help determine the actual job duties of their exempt employees Employee Job Analysis 13 Building a Smarter Workforce

14 Other areas of consideration Other areas this may impact: Mobile device policies Working remote policies Travel pay policies Work Load as you reclassify exempt to non-exempt and cap them at 40 hrs how is the extra work being done? Probably your left over exempt employees (may be the manager!) OR is this an opportunity to smooth out the job process? ACA More workers? More hours? Affordability Benefits exempt/non-exempt differences Total Compensation Strategy Will you lower the benefit values to make up for extra cash values? 14 Building a Smarter Workforce

15 The Final Rule Happened in May What steps are you taking to comply? Increase all exempt employees to that minimum level if applicable? In budget? Change positions to non-exempt? Recordkeeping rules could create entire change of business practice Employee morale- image Reduce base pay and pay overtime? Pay hourly or non-exempt salary Fluctuating work week scenarios Reduce hours and hire more workers at lower rate? Overtime dollars - In budget? NEXT STEPS: Start the conversations now! Start the review of each exempt employee that may be re-classified. Review Salary Review current exemption test. 15 Building a Smarter Workforce

16 More changes to come? You can count on it! Keep on top of what is going on out there Newsletters Listservs Seminars/webinars/conferences 16 Building a Smarter Workforce

17 17 Building a Smarter Workforce Questions?

18 Thank You! Brenda JM Sabin, CBP, SPHR, SHRM-SCP, CHRS