Jackson Area Association of Independent Schools

Transcription

1 Jackson Area Association of Independent Schools Presented by Christopher Fontan Thursday, October 27, 2016

2 Fair Labor Standards Act (FLSA) Expansion of Overtime Eligibility Through Change of Exempt Employee Element

3 What is the FLSA? The Fair Labor Standards Act (FLSA) is a federal law Establishes: Affects: Minimum wage Part-time workers Overtime pay equity Full-time workers Recordkeeping Private sector Child labor standards Federal, state and local governments

4 FLSA s Overtime Requirements The FLSA generally requires that employers pay employees overtime at least straight time plus one-half times their regular rate of pay for every hour they work in excess of 40 hours in a particular workweek. 29 U.S.C. 207(a). Hourly Salary = $20 (Salary x 1.5) (each hour over 40) OT pay 45.5 hrs 40 OT rate = $20 x 1.5 = $30 OT hours = 5.5 hours $30 x 5.5 = $165 OT Total = 40 x $20 = $ x $30 = $165 $965

5 FLSA s Overtime Exemptions The FLSA and its interpretative regulations published by the DOL, however, exempt certain groups of employees from the overtime pay requirements. The most common exemption the so-called white collar exemptions. 29 U.S.C. 213(a)(1).

6 FLSA s Overtime Exemptions Types of White Collar Exemptions: Executive Administrative Professional 29 U.S.C. 213(a)(1).

7 White Collar Exemption - Mechanics Perform executive, administrative, or professional duties (the Duties Test ) make a certain weekly salary (the Salary Test Requirement ) 29 C.F.R

8 White Collar Exemption The regulations also exempt highly compensated employees who customarily and regularly perform one of the exempt duties of an administrative, executive or professional employee, but who do not otherwise meet the duties test. 29 C.F.R

9 White Collar Exemption - Tests Salaried - meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the Salary Basis Test"); Paid at least a specific salary threshold - which is $455 per week (the equivalent of $23,660 annually for a full-year employee) in existing regulations (the Salary Level Test"); and Primarily perform executive, administrative, or professional duties, as provided in the Department's regulations (the Duties Test").

10 Executive Exemption - Tests The employee must be compensated on a salary basis at a rate not less than $455 per week; The employee s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and The employee must have the authority to hire or fire other employees, or the employee s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

11 Administrative Exemption Tests The employee must be compensated on a salary or fee basis at a rate not less than $455 per week; The employee s 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; and The employee s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

12 Learned Professional Exemption Tests The employee must be compensated on a salary or fee basis at a rate not less than $455 per week; The employee s primary duty must be 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; The advanced knowledge must be in a field of science or learning; and The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

13 Creative Professional Exemption - Tests The employee must be compensated on a salary or fee basis at a rate not less than $455 per week; The employee s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

14 Highly Compensated Exemption Tests Perform office or non-manual work Compensation of $100,000 or more per year which must include at least $455 per week on a salary or fee basis IF: customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standards test for exemption

15 Specific Professions Exemptions Sub-Exemptions to Learned Professionals which do not include a Salary Test: Teaching Practice of Law Practice of Medicine

16 Teachers Learned Professional Exemption A bona fide teacher - exempt from the overtime requirement of the FLSA Bona fide teachers : o Required to satisfy the Job Duties Test. o Not required to satisfy the Salary Test in order to be exempt under the FLSA. The proposed Overtime Rule going into effect on December 1, 2016 will not affect whether a teacher is subject to overtime or not. If he/she was PROPERLY classified as exempt before December 1 st, he/she will be properly classified as exempt after December 1 st.

17 The Ultimate Test Are our teachers properly classified i.e., do our teachers qualify as bona fide teachers for purposes of the FLSA?

18 The Ultimate Test Bona Fide Teacher Test: To be properly classified as an exempt bona fide teacher, all of the following must be satisfied: The employee s primary duty must be teaching, tutoring, instruction, or lecturing in the activity of imparting knowledge ; The employee must be employed and engaged in the teaching activity as a teacher in an educational establishment 29 CFR

19 What is an Educational Establishment? Under the FLSA, educational establishment means: 29 CFR (b) An elementary or secondary school system An institution of higher education, or Other educational institution 29 CFR (b)

20 What is an Educational Establishment? Sections 3(v) and 3(w) of the FLSA define elementary and secondary schools as those day or residential schools that provide elementary or secondary education, as determined under state law. Under the laws of most states, such education includes the curriculums in grades 1 through 12. For many states, it also includes introductory programs in kindergarten. Some states also include nursery school programs in elementary education and junior college curriculums in secondary education.

21 What is an Educational Establishment? The term other educational establishment includes special schools for children with intellectual, developmental, or physical disabilities or for gifted children regardless of any classification of such schools as elementary, secondary, or higher. 29 CFR (b)

22 What is an Educational Establishment? Factors relevant in determining whether post secondary career programs (i.e., vocational/ technical schools) qualify as educational institutions : Is the school is licensed by a state agency responsible for the state s educational system? Is it accredited by a nationally recognized accrediting organization for career schools?

23 Bona Fide Teacher Exemption Key Point For purposes of the bona fide teacher exemption, the FLSA does not make a distinction between: Public and private schools, or Schools operated for profit and those that are not for profit. Test is the same. 29 CFR (b)

24 Bona Fide Teacher Exemption Key Point To be a bona fide teacher, the FLSA and its regulations: Do NOT require a minimum salary (or satisfaction of any salary basis test) Do NOT require any minimum educational or academic degree requirements 29 CFR (d)

25 Impact of Teacher Certification Possession of an elementary or secondary teacher s certificate identifies the individuals who are considered within the scope of the exemption for teaching professionals. Teachers who possess a teaching certificate qualify for the exemption, regardless of the terminology (e.g., permanent, conditional, standard, provisional, temporary, emergency, or unlimited) used by the state to refer to different kinds of certificates.

26 Impact of Teacher Certification However, private schools and public schools are not uniform in requiring a certificate for employment as an elementary or secondary school teacher, and a teacher s certificate is not necessary for employment in institutions of higher education or other educational establishments. Therefore, a teacher who is not certified may still be considered exempt, IF he/she is still employed as a teacher by the employing school or school system. 29 CFR (c)

27 Bona Fide Teachers The FLSA generally recognizes the following as bona fide teachers : Regular academic teachers, Teachers of kindergarten or nursery school pupils, Teachers of gifted or disabled children, Teachers of skilled and semiskilled trades and occupations, Teachers engaged in automobile driving instruction, aircraft flight instructors, home economics teachers, and Vocal or instrumental music instructors. 29 CFR (b)

28 Bona Fide Teachers Faculty members engaged as teachers who also spend a considerable amount of their time in other extracurricular activities (such as coaching athletic teams; advisors in such areas as drama, speech, debate, or journalism) are still exempt under the bona fide teacher exemption. Such extracurricular activities are a recognized part of the schools responsibility in contributing to the educational development of the student. 29 CFR (b)

29 Non-Exempt Employees with Part-Time Teaching Roles: What about an employee who: Works in a full time, non exempt position with an educational institution (not as a bona fide teacher ), but Also works part time performing teaching duties such as an employee who teaches a course at night. Has the full time, non exempt employee transitioned into an exempt employee by performing part time teaching duties? No. Focus on the employee s primary duty for the employer/educational institution. Here, the employee s primary duty is the non exempt functions. CAUTION: In these cases, all hours worked by that employee including time spent on teaching duties (this includes out of class preparation time) must be accounted for when determining the non exempt employee s total hours worked, including applicable overtime.

30 Preschool Teachers What about preschool or nursery school teachers? Under the FLSA, it depends you must focus on the application of the test: Does the employee (1) work in a qualifying educational establishment; and (2) have the primary duty of imparting knowledge through teaching, tutoring, instructing, or lecturing. According to the Department of Labor imparting knowledge through teaching, tutoring, instructing, or lecturing is a fact question, but requires predominantly intellectual work, which includes the exercise of discretion and judgment in providing instruction to pupils.

31 Preschool Teachers Although preschools and day care centers (particularly at the earliest ages of preparing children to enter school) may engage in some educational activities, employees whose primary duty is to provide custodial care for the basic physical needs of the children attending as opposed to being engaged in the intellectual activities of teaching, tutoring, instructing, or lecturing in order to impart knowledge will generally fail to satisfy the primary duty test for teacher exemption. Similarly, daycare centers providing custodial care and protection of preschool age children, before they are old enough to enter the kindergarten or nursery school programs established for the particular state s elementary school curriculum, do not qualify as educational establishments for purposes of the teacher exemption.

32 Preschool Teachers Conversely, bona fide teachers working in qualifying preschool and kindergarten settings will satisfy the test for the exemption just as if they were a teacher in an elementary or secondary school. The focus is on (1) the school (does it qualify); and (2) the type of work performed by the teacher 29 USC 213(a)(1); 29 USC 203(v); 29 CFR (b); 29 CFR ; WHD Opinion Letter FLSA NA

33 Substitute Teachers What about a substitute teacher? A substitute teacher may qualify for the professional exemption if the duties test is met. Again focus on (1) the school; and (2) what the employee/teacher is actually doing. Substitute teachers qualify for the professional exemption if their primary duty is teaching and imparting knowledge in an educational establishment.

34 Substitute Teachers A substitute teacher with a teaching certificate clearly qualifies for the professional exemption. However, the FLSA recognizes that many school systems do not require teaching certificates for substitute teachers. As with regular teachers, employees working as substitute teachers can be exempt, regardless of advanced education or certification, so long as they satisfy the basic test. On the other hand, substitute teachers whose primary duties are not related to teaching (for example, performing general clerical or administrative tasks for the school unrelated to teaching their assigned students, or manual labor) do not qualify for the professional exemption.

35 Change #1: Standard Salary Level Increases $47,476 Or $913 per week $23,660 Or $455 per week

36 Change #2: HCE Threshold Will Increase $134,004 Or $2,577 per week $100,000 Or $1, per week

37 Rationale for Increases The current standard salary level is below the poverty line for a family of four It simplifies the exemptions by allowing employers to more easily identify employees who perform exempt work Less litigation

38 Change #3 Salary Level Will Increase Automatically Every Three Years Next Increase January 1, 2020 DOL Estimates $51,168 for standard salary DOL will announce increases 150 days prior to dates of increase Announcement for 2020 increase: Early August 2019

39 Change #4 Employers Permitted to Use Incentive Compensation to Partially Meet Salary Level Requirement Salary + Incentive Comp = $47,476 Incentive Comp 10% Incentive Compensation: Commissions Non-discretionary Bonuses Other Incentive Payments Salary Incentive Compensation Limit: 10% ($47,728.40; per week required)

40 Use of Incentive Compensation to Satisfy Salary Level 10% Rule applied on a Quarterly Basis (or more frequently, such as monthly) DOL will permit catch-up payments if incentive compensation too low Must be paid within the next pay period 10% Rule does not apply to HCE HCE s must be paid full standard salary level without regard to incentive compensation

41 The New Rule Change By the Department s calculations, [a]t the 40th percentile of full-time salaried workers, there will be 10.9 million fewer white collar employees for whom employers could be subject to potential litigation regarding whether they meet the duties test for exemption (4.6 million who would be newly entitled to overtime due to the increase in the salary threshold and 6.3 million who previously failed the duties test and would now also fail the salary level test). Disputes over whether one of the white collar exemptions applies (the duties test) should be far less frequent. If there is a silver lining for employers, this is it.

42 The New Rule Change The Department estimates that average annualized direct employer costs will total between $239.6 and $255.3 million per year, depending on the updating methodology. In addition to the direct costs, this proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used.

43 The New Rule Change The biggest impact, according to the NPRM, will be on educational and health services, with substantial impacts on wholesale/retail trade, professional and business services, and the leisure and hospitality industries. Because of the differences in standards of living, businesses in the South and in rural areas will feel the salary level increase most acutely. However, at $50,440, the proposed salary level exceeds even the highest state thresholds in California and New York. The salary level will also likely wipe out exempt positions offered on a part-time basis, which are still possible at the current $455/week level.

44 Duties Test No Changes to Duties Test

45 Presented By: Chris Fontan Brunini, Grantham, Grower & Hewes, PLLC 190 East Capitol Street (Zip ) (601) (office) (662) (fax) cfontan@brunini.com

46 Disclaimer IRS Circular 230 Notice To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any taxrelated matter addressed herein. This presentation is not designed or intended to provide legal or professional advice, as any such advice requires the consideration of the facts of the specific situation.