Final New DOL Overtime Rule: Strategies to Mitigate Impact of 100% Increase in White-Collar Exemption

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Final New DOL Overtime Rule: Strategies to Mitigate Impact of 100% Increase in White-Collar Exemption WEDNESDAY, JUNE 22, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Roland M. Juarez, Partner, Hunton & Williams, Los Angeles Tammy D. McCutchen, Principal, Littler Mendelson, Washington, D.C. Dena H. Sokolow, Shareholder, Baker Donelson Bearman Caldwell & Berkowitz, Tallahassee, Fla. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 Preparing for Change: DOL s Final Rule on Overtime June 22, 2016

5 Presented By: Roland Juarez Hunton & Williams LLP (213) Tammy McCutchen Littler Mendelson P.C. (202) Dena H. Sokolow Baker Donelson (850)

6 Agenda The White Collar Exemptions DOL s Final Rule Preparing for Change 6

7 Preparing for Change: DOL s Final Rule on Overtime THE WHITE COLLAR EXEMPTIONS 7

8 FLSA Wage & Hour Law The Fair Labor Standards Act (FLSA) requires that most employees be paid: at least the federal minimum wage for all hours worked and overtime pay (at time and one-half the regular rate of pay) for all hours worked over 40 hours in a workweek. The FLSA is an employee protection act and employees are generally presumed entitled to overtime. Strict recordkeeping requirements. The FLSA, however, provides an exemption from both minimum wage and overtime pay for certain white collar workers. 8

9 WHITE COLLAR EXEMPTIONS 29 C.F.R. Part 541 Categories of white collar employees that may be exempt from both minimum wage and overtime requirements of the FLSA: Executive Administrative Professional Highly Skilled Computer Employees Outside Salespersons Highly Compensated Employees 9

10 REQUIREMENTS FOR EXEMPTION Three-part test for exemption: 1. How employees are paid SALARY BASIS employee must be paid a pre-determined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed no partial day deductions 10

11 REQUIREMENTS FOR EXEMPTION Three-part test for exemption: 1. How employees are paid SALARY BASIS employee must be paid a pre-determined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed no partial day deductions 2. How much they are paid SALARY LEVEL currently this is $455/week or $23,660 per year 11

12 REQUIREMENTS FOR EXEMPTION Three-part test for exemption: 1. How employees are paid SALARY BASIS employee must be paid a pre-determined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed no partial day deductions 2. How much they are paid SALARY LEVEL currently this is $455/week or $23,660 per year 3. What kind of work do they do JOB DUTIES TEST each category of exemption Executive, Administrative & Professional - has different required job duties as set forth in the regulations (ex. regularly supervises 2 or more full-time employees) 12

13 REQUIREMENTS FOR EXEMPTION Three-part test for exemption: 1. How employees are paid SALARY BASIS employee must be paid a pre-determined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed no partial day deductions 2. How much they are paid SALARY LEVEL currently this is $455/week or $23,660 per year 3. What kind of work do they do JOB DUTIES TEST each category of exemption Executive, Administrative & Professional - has different required job duties as set forth in the regulations (ex. regularly supervises 2 or more full-time employees) 13

14 The Rulemaking Process March 2014, Memorandum: President Obama directs Secretary of Labor Perez to modernize and streamline th overtime regulations July 6, 2015, DOL published proposed new overtime rules September 4, 2015, the 60-day comment period closed after nearly 300,000 comments were filed, a DOL record March 14, 2016, DOL sends Final Rule to White House Office of Management & Budget for review May 18, 2016, DOL publishes the Final Rule 14

15 The Proposed Rule Salary Level Set the minimum salary required for exemption at the 40th percentile of weekly earnings for full-time salaried employees (national statistic) $970 per week ($50,440 annualized) HCE raised to $122,148 (90 th percentile) Automatically increase the minimum salary levels annually based either on the 40 th percentile or inflation (CPI-U). Requested comments on: Whether nondiscretionary bonuses could be included in salary level (indicated might agree to a cap of up to 10% of the minimum salary level). DOL indicated no commissions would be included. Job duties (should the DOL adopt CA S 50% rule) 15

16 Preparing for Change: DOL s Final Rule on Overtime DOL FINAL RULE 16

17 What is NOT Changing No changes to the salary basis test No changes that impact outside sales, teachers, lawyers or doctors No changes to the duties tests No changes in the definition of primary duty No changes to the concurrent duties provision 17

18 Minimum Salary Level $913 per week ($47,476 annualized) Up from the current $455 per week ($23,660 annualized) Down from DOL s proposed $50,440 Set at the 40th percentile of full-time non-hourly paid employees is the lowest wage Census region (South) 18

19 Bonuses and Commissions Nondiscretionary bonuses, incentive payments and commissions, paid at least quarterly, can satisfy up to 10 percent of the minimum salary requirement 19

20 How Will This Work? Each workweek, the employer must pay the exempt employee a salary of at least 90% of the minimum salary level $ ($42, annualized) At the end of the quarter, if that salary plus all bonuses/commissions paid during the quarter do not equal $11,869 ($47,476 4), to maintain the exemption, the employer has to make up the shortfall in the first pay period of the next quarter. Question: What if an employee leaves in the middle of a quarter? 20

21 Highly Compensated Employees $134,004 total annual compensation Up from the current $100,000 Up from DOL s proposed $122,000 Set at the 90th percentile of fulltime non-hourly paid employees nationwide 21

22 Automatic Salary Level Increases The salary levels will automatically increase every 3 years, beginning January 1, 2020 DOL will provide notice of the new salary levels not less than 150 days before the January 1 st effective date in the Federal Register and at 22

23 Effective Date December 1, 2016 But remember, some states require advance notice to employees of changes in pay In some states only applies to reductions in pay Most common is 7 days or one pay period Longest is 30 days in Missouri for reductions in pay WARNING: Providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes/facilities with 15 or fewer beds you also must comply by 12/1 DOL s policy delaying enforcement until March 2019 does not prevent employees from bringing private litigation 23

24 Path to Stop or Modify the Rule? Protecting Workplace Advancement and Opportunity Act Introduced March 17, 2016 by Senate and House Republicans; even if passed, unlikely to withstand President Obama s veto Nullify proposed or final rule Prohibit automatic salary increases and changes to duties test without further notice and comment Congressional Review Act Requires joint resolution of Congress within 60 legislative days of publication of the Final Rule CRA will not be available for regulations published by May 16 President Obama would veto 24

25 Path to Stop or Modify the Rule? Litigation Challenge There are arguments that DOL does not have authority for the automatic salary increases and the very high salary level New Notice of Proposed Rule Making An incoming Republican administration could restart the regulatory process Most likely also would be limited to automatic salary increases and changes to the duties test Difficult to walk back from the salary level increase 25

26 Preparing for Change: DOL s Final Rule on Overtime PREPARING FOR CHANGE 26

27 Preparing for Change Bottom line: The new rules are not going to go away Determining who to reclassify and implementing reclassification can take up to six months December 1 st will be here before you know it State laws notice of pay changes 7 to 14 days in advance (30 days in Missouri for reductions in pay) Don t wait! Start NOW! 27

28 Compliance, Step-By-Step 1. Identify employees who need a salary increase or to be reclassified 2. Develop new compensation plan for the reclassified employees 3. Review wage-hour policies and processes 4. Communicate the changes 5. Train the reclassified employees and their managers 28

29 Salary Increase or Overtime? Pull salary and incentive pay data for all employees earning below $47,476 annual salary Or, below $42, annual salary with at least $4, in bonuses and commissions Calculate the cost of increasing salary to $47,476 Consider a re-mix lowering incentive pay to offset salary increase Calculate the cost of overtime How many hours are exempt employees are working? (Weekly salary / 40) * 1.5 * expected overtime hours 29

30 Job Duty Review Even if salary level is not an issue, you may have employees who do not meet the duties requirements for exemption under the current regulations Rare opportunity to correct classification issues with reduced risk of triggering litigation With other employees being reclassified because of the salary issue, reclassifications because of job duties should fly under the radar 30

31 Job Duty Review Process Conduct under the attorney-client privilege Review HRIS Data salaries, bonuses, direct reports, educational degrees Review Documents job descriptions, training materials, performance expectations Interview SME managers Legal analysis to determine if job duties qualify for an exemption 31

32 After the Reclassification Decision 32

33 Compensation Plan Redesign Should we continue to pay reclassified employees on a salary or convert them to a hourly rate? Should we adjust the salary level downward or adopt an hourly rate that will minimize additional costs? How will we calculate overtime for salaried nonexempt employees? Divide salary by 40 Divide salary by actual hours worked Fluctuating workweek Will we continue to provide incentive compensation? Do we need to make changes to any benefits? 33

34 Cost-Neutral Solution Weekly Salary / (40 + (OT Hours x 1.5)) With a good estimate of expected weekly work hours, applying this formula will provide an hourly rate which will result in the same weekly and annual compensation Yes, its legal DOL gave us this formula in the preamble to the 2003 Notice of Proposed Rulemaking (68 F.R ) 34

35 Review Policies and Processes Policies Off-the-clock work Meal and rest break Travel time Mobile device Processes Timekeeping Payroll changes Controlling overtime hours 35

36 Communicate the Changes Need to communicate with senior management, managers of reclassified employees and the employees themselves Key decisions Who will communicate the changes? What will be communicated? How will changes be communicated? When will the changes be communicated Prepare talking points and FAQs 36

37 Training Train the reclassified employees and their managers Wage & hour policies Timekeeping procedures Activities that are compensable work 37

38 Preparing for Change: DOL s Final Rule on Overtime 38