DOL Has Issued Its Final Rule Revising the White Collar Overtime Exemptions: Is Your Business Prepared?

Transcription

1 DOL Has Issued Its Final Rule Revising the White Collar Overtime Exemptions: Is Your Business Prepared? Louis P. Britt, Partner Russell W. Jackson, Counsel September 15,

2 Overview Why the new regulations are a big deal. What are the FLSA s new rules for overtime exemption? What should employers do now? What options do employers have and what considerations should be taken into account? What s next? Challenges to the rule?

3 New Regulations are a BIG deal Increases minimum salary needed to be exempt by over 100% Current DOL Estimates are: Over 20 million workers will become OT eligible Employers will spend $592.7 million in complying with the new rule $254.5 million to become familiar with the regulation $160.1 million to make necessary adjustments $178.1 million in managerial costs DOL Investigations and Lawsuits will rise State Law Issues Increase is greater than current $41,600 threshold in CA

4 FLSA CASES FILED IN DISTRICT COURT Not including state & DOL matters

5 Everyone is Entitled to Overtime Unless the Employer Can Prove They are Exempt Virtually every employee is afforded rights under the FLSA Therefore, virtually every employee is entitled to overtime, unless they are exempt Employers must plead and prove each exemption Affirmative Defense; Narrowly Construed Three General Categories of Exemptions Section 13(a)(1) i.e. White Collar Agriculture Miscellaneous i.e. Motor Carrier Act, Outside Sales exemption, retail sales exemption, etc.

6 Exemption Tests Every white collar exemption has three components: Salary Basis Test (salary or fee) Salary Level Salary Level has increased significantly through new regulations Duties test (not changed by new rules)

7 White Collar Exemptions Effected by New Rule Executive, Administrative, and Professional ( EAP ) Professional is broken up into three categories: Learned Professional, Creative and Computer Note: For Computer Professionals, you can alternatively pay them at a rate of at least $27.63 per hour, which has not been changed by the new rules. Highly compensated is not an exemption Rather, a different threshold for the EAP exemptions

8 Summary of New Rules

9 Doubles the minimum salary level to qualify for white collar exemptions Increase to $913 per week ($47,476 annually) Previously $455 per week ($23,660) Tied to 40 th percentile of full-time salaried workers in the lowest region (North, East, South or West) (For Q4 2015, this was the South) Up to 10% of nondiscretionary bonuses, incentive pay, or commissions may be included if paid at least quarterly Catch-Up payment allowed in first pay period following quarter

10 New Salary Level For Highly Compensated Employees New threshold is $134,004 (previously set at $100,000) Tied to 90 th percentile of full-time salaried workers nationally Still requires payment of at least $913 per week Nondiscretionary bonuses, incentive payments, commissions, and catch-up payments Cannot be applied to $913 per week Can be applied to yearly threshold of $134,004

11 Unprecedented Automatic Updating The salary level will be updated every three years, beginning on January 1, 2020 DOL will post salary levels at least 150 days before the effective date (Federal Register and DOL website) Tied to same 40 th and 90 th percentile calculations as described earlier DOL estimates, based on current growth projections, that the 40 th percentile calculation will result in an annualized level of $51,168 in 2020 Similar increases would estimate $55,108 (2023) and $59,351 (2026) Flawed Data Set?

12 New Rules Some Good News No change to the duties test DOL wants to make new regulations bulletproof to challenge Effective Date: December 1, 2016 Longer than 60 days anticipated Even longer than 2004 Final Rule which gave 4 months to comply

13 What Should Employers Do Now?

14 What Should Employers Do? Have a Game Plan Step 1: Investigate and Identify Step 2: Analyze Impact Step 3: Evaluate Options Step 4: Prepare and Mitigate Step 5: Implement and Communicate Step 6: Continually Audit

15 What Should Employers Do? Step 1: Investigate and Identify Identity all affected employees Consider looking beyond the $47,476 threshold Categorize these employees by position and analyze entire business unit Exactly how many are affected? Review issues potentially related to salary compression by looking at compensation of employees (upstream and downstream)

16 What Should Employers Do? Step 1: Investigate and Identify Investigate and interview managers How many hours do employees normally work? Do they even work more than 40 hours per week? What tasks do these employees perform? What tasks do higher/lower level employees perform? Is there overlap or potential redistribution? Can we restructure the workforce? How are they currently being paid? Are there Home-Work Telecommuting issues? Administrative burden? Time and Record keeping

17 What Should Employers Do? Step 2: Analyze Impact Can job duties of affected individuals be redistributed or eliminated? Would this result in reduction of hours worked? Would hours worked change through reclassification? Can certain functions be outsourced? Increase in part-time work force? Restructure workforce to create levels within positions? Budgetary/financial constraints. Restructuring payroll Salary Compression What is the compensation for other positions? How would increasing the salary for the effected individual impact other (higher level) positions? Evaluate benefit plans. What company benefits would change for an employee if they were converted from exempt to nonexempt? Employee morale issues (I ve worked hard for this company and now you re telling me I m hourly?)

18 What Should Employers Do? Step 2: Analyze Impact Analyze legal issues and consult counsel Are your overtime policies and timekeeping/payroll procedures clear and accurate? What other policies do you need? What state law issues could exist? i.e., state meal and rest break laws Obtaining good faith defense Obtaining information that will help evaluate options for reclassification Prepare for increased litigation Do other exemptions not affected by the regulation apply? (outside sales, retail, etc.)

19 What Should Employers Do? Step 3: Consider and Evaluate Options After identifying affected employees and analyzing the business impact, evaluate options on what to do with these employees What are the options to restructure or reclassify your workforce? Keep them as exempt by increasing salary Convert to hourly non-exempt Other compensation methods Salaried non-exempt (salaried plus OT) Fluctuating workweek (state law issues) Belo contract (60 hours very complex) Fee basis or Piece Rate On call, blended rates and other pay structures

20 Keeping Employees Exempt Will need to increase salary to meet the new minimum salary level Example: An exempt regional manager currently earns $45,000 on a salary basis. Starting on December 1, 2016, the Company may increase his salary to $47,476 in order to maintain the exemption. The manager would not be entitled to overtime.

21 Keeping Employees Exempt How will this impact business? Cost Effect on other positions and compensation for those other positions (i.e., salary compression; morale of higher level employees) Revisit and ensure that the salary basis test is being met Meeting minimum salary level is only one part of requirement Must also meet the salary basis test 21

22 Converting Exempt to Hourly Non-Exempt Evaluate and determine the proper hourly rate What benefits will be lost by converting to non-exempt? Ensure timekeeping, payroll and overtime processes and policies are accurate and complete Adopt clear payroll integrity policies to be acknowledged by employees Revisit how to calculate hours worked, regular rate and overtime so as not to create exposure for failure to pay proper overtime Communication Plan Senior leadership and management; non-managerial employees State law issues: Tennessee requires employers to notify of change in compensation Union and CBA issues

23 Tips for Reclassifying to Non-Exempt Reverse engineer the compensation package Configure hourly rate, bonuses and anticipated OT to maintain overall compensation levels Reduce or reallocate non-exempt employees hours Transfer certain tasks up to exempt employees Spread out hours (new employees or part-time workforce)

24 Overtime Issues To correctly calculate an employee s overtime pay, you must understand two key concepts: What is an employee s regular rate? What are hours worked?

25 Included in Regular Rate Commissions Shift or job differentials Premium pay for hazardous work Non-discretionary bonuses Prizes and awards

26 Excluded from Regular Rate Payments for time not worked Vacation, holidays, sick leave, reporting pay Voluntary premium pay of at least 1 ½ times an employee s hourly rate For hours worked over 8 in a day, for work on Sundays or holidays, or for work on the seventh day in a work week Reimbursement for reasonable business expenses Discretionary bonuses Gifts for Christmas or other special occasions Employee benefits Retirement and insurance benefits, bona fide profit sharing plans, stock options

27 Hours Worked Issues Waiting Time On-Call Time Meal and Rest Periods Auto Deductions Training Time Travel Time Preliminary and Postliminary Activities Rounding Off the Clock Work

28 Other Compensation Method Options Salary Nonexempt Salary for a specified number of hours per week that the salary is intended to compensate Regular rate calculated by dividing the salary by the standard number of hours the salary was intended to cover Consider company benefits that apply only to salaried nonexempt Example: A marketing director earns a fixed salary of $41,600/year ($800/week) for a 40 hour workweek. Because her salary is for 40 hours, her regular rate is $20/hour. If she works 45 hours one week, the Company can pay her an overtime premium for those five OT hours ($30/hour). She should be paid a total of $950 ($800 in normal salary, plus $150 in overtime pay).

29 Other Compensation Method Options Two or more hourly rates (i.e., Blended Rate) Regular rate is the weighted average of all nonovertime rates used during that workweek Piece or Fee Basis Regular rate calculated by adding together total earnings divided by total hours worked for the given week Commissions 29

30 Other Compensation Method Options Fluctuating workweek Clear understanding that fixed salary is intended to cover all hours during the workweek, regardless of the number of hours worked, when employee s hours fluctuate from week to week Regular rate is calculated by dividing salary by the number of hours worked that week. Employee need only be paid ½ times the regular rate for any hours over 40 as employee has already been compensated straight time for all hours worked Some states prohibit use of fluctuating work week (okay in TN) Example: Employee makes $500/week and has a clear mutual understanding this amount is for all hours worked. Over two weeks, employee works 44 and 50 hours each week, the employee s base hourly rate is $11.36 and $10.00, respectively. Employee is entitled to 4 and 10 hours of overtime for these weeks. Employee is entitled to overtime pay equal to half his hourly rate for any time worked over 40 hours. For the 44 hour week, employee should be paid half his hourly rate of $11.36 for the 4 hours of overtime or $22.72 ($5.68 x 4). For the 50 hour week, the employee should be paid half his hourly rate of $10.00 for the 10 hours of overtime, or $50.00 ($5.00 x 10)

31 Other Compensation Method Options Belo contract Employee s duties must necessitate irregular or variable hours (above and below 40 hours per week) that employer cannot reasonably control Must be a bona fide agreement for a guaranteed weekly amount of pay that will cover all hours (straight time and overtime) up to 60 hours per week Any hours over 60 must be compensated at one and one half times the regular rate Failure to meet these conditions will likely result in the OT being calculated at the FWW method Examples of jobs that use Belo contracts include outside buyers, on-call service professionals, insurance adjusters, newspaper reporters and photographers. 31

32 What Should Employers Do? Step 4: Prepare and Mitigate Consult an attorney Discuss strategies to achieve business goals Organization and/or restructuring of business unit Ensure compliance and create a good faith defense in response to potential litigation (which will reduce damages) Update and review policies to be distributed Payroll integrity, time record certification, complaint mechanism, mandatory mediation Arbitration Agreements, Class Action and Jury Trial waivers

33 Good Faith Defense Practical Benefits Consulting with counsel can establish good faith defense Even if counsel s advice turns out to be wrong Pignataro v. Port Authority of New York and New Jersey, (3 rd Cir. 2010) The Court held that the employer had misclassified its helicopter pilots as exempt but had not acted willfully because it relied on research by its law department. Two-year, not three-year, statute of limitations applied. Adeva v. Intertek USA, Inc., (D.N.J. January 10, 2010) Employer did not properly calculate overtime for oil, gas, and chemical inspectors. However, liquidated damages were denied based on the good faith defense because the regulation was ambiguous and the employer had consulted with outside counsel.

34 Payroll Integrity Policy Policy should: Contain key definitions (e.g., working time ); Prohibit off-the-clock work while ensuring that, in the event work is performed, employees will be paid but disciplined; Require immediate reporting of off-the-clock work; Provide a mechanism for employees to report off-the-clock work anonymous address or 800 number; Advise employees that no one is authorized to require offthe-clock work and employees risk termination if they do; Require employees to report violations of the timekeeping policy including reporting supervisors who ask them to work off the clock.

35 Recording Hours FLSA requires employers to preserve at least 3 years of payroll records for non-exempt employees Employers may use any timekeeping method so long as it is complete and accurate If employer fails to keep records, employee has lessened burden: evidence sufficient to create reasonable inference that he/she worked the hours claimed without compensation

36 Certification of Time Records Policy Require non-exempt employees to review time records at end of work week. Require employees to certify the time records are accurate. If inaccurate, require employee to identify inaccuracies and immediately correct inaccuracies Require employees to review accuracy of paycheck and report issues.

37 Adopt a Complaint Mechanism Policy Revise existing complaint mechanism to ensure it specifically addresses wage and hour issues. Publicize complaint mechanism. Train managers and payroll personnel to be alert to payroll concerns. Promptly investigate payroll concerns and take prompt remedial steps if appropriate. Ensure that any oral or written complaint made to a supervisor of member of your management team gets filed and reviewed in a central location.

38 Audit Time Records for Compliance Adopt an audit protocol to ensure employees and managers are following policies and procedures. Audit Time and Attendance System and Payroll Systems Exemption Review performance evaluations, reorganizations, new divisions, new positions, etc.

39 What Should Employers Do? Step 5: Implement and Communicate Prepare for implementation How will the changes be communicated to the workforce and/or effected employees? Training and Educating managers and employees (particularly those who have never had to clock in/out before) Stay consistent with discipline for timekeeping violations

40 Communication Plan Employees Managers Training Policies

41 Supervisory Training Monitoring and recording all hours worked Time and Attendance Records Overtime Approval process After-hour s and other communications Disciplinary protocol for addressing unauthorized overtime Responding to employee resistance and complaints: No retaliation Post-implementation compliance audit

42 Training Newly Non-Exempt Employees OT protocols including requirement of manager approval Discipline for unauthorized overtime Off-the-clock work Complete and accurate time recording Leave time issues Working remotely/at home/after hours Travel time Use of mobile devices Mechanism for registering complaints and reporting non-compliance No retaliation policy

43 Be Prepared: Common Questions from Reclassified Employees Why is their status being changed? Is this a demotion? Will overtime be paid retroactively? Will this change impact work responsibilities/hours? Will they have to work overtime if they don t want to? Why is their hourly rate being lowered (if applicable)?

44 What Happens Next? Step 6: DOL will update the salary threshold every three years; continually audit and monitor Legislative Challenges Congressional Review Act Protecting Workplace Advancement and Opportunity Act Appropriations Private Lawsuits New Administration could challenge triennial indexing Regardless, employers must prepare to be in compliance by December 1, 2016

45 THANK YOU! ANY QUESTIONS PLEASE CONTACT Louis P. Britt, Partner P: (901) Russell W. Jackson, Counsel P: (901)