Building a Smarter Workforce. Preparing for the FLSA White Collar Exemption Changes Worker Classifications IC vs EE September 10, 2015

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2 Building a Smarter Workforce Preparing for the FLSA White Collar Exemption Changes Worker Classifications IC vs EE September 10, 2015

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 Vermont $9.15 hr Tipped $4.58 hr in direct wages Recordkeeping Equal Pay Act Child Labor Laws Exempt vs Non-exempt Classifications 3 Building a Smarter Workforce

4 Positions Not People Exempt Minimum Salary* Must be paid on a salary basis Duties Test Not covered by FLSA min wage and overtime laws Tracking of work time is not required by FLSA, You can require it Non-Exempt Paid hourly OR salary Any hours over 40 have to be paid overtime Protected by FLSA min wage and Overtime regulations 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 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). 6 Building a Smarter Workforce

7 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 7 Building a Smarter Workforce

8 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 8 Building a Smarter Workforce

9 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. 9 Building a Smarter Workforce

10 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. 10 Building a Smarter Workforce

11 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. 11 Building a Smarter Workforce

12 OK so what is changing? The Salary level Currently the proposal states: Increase the salary requirements for employees to be considered exempt; (proposal is to increase to $50,440) $970 per week Implement automatic salary requirement updates; Receive feedback on whether modifying the duties test is necessary at this time. The comment phase ended on September 4 th The highly compensated level ($100,000) would increase to $122,148 What should you be doing now? 12 Building a Smarter Workforce

13 What should you do right now to prepare? Make sure your management understands this is coming and it could potentially disrupt business operations. Potential of reclassifying employees Compare the costs of giving raises to employees who are currently exempt but make less than $50,440 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. Recordkeeping requirements 13 Building a Smarter Workforce

14 What should you do right now to prepare? Run a report of exempt employees and their salaries Is anyone close to 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? DOL MAY allow non-discretionary bonus to count toward the minimum salary. PREPARE for a change in duties tests!! (Think 50% time) 14 Building a Smarter Workforce

15 What should you do right now to prepare? Do a self audit of your current exempt positions Do they meet the current exemptions tests? Are there any positions you are unsure of? Pull those to be reviewed by legal counsel You may have positions classified as exempt with a minimum salary which could change to be non-exempt or you need to increase their salary. Examine your job descriptions! May be a requirement with new rules to maintain the exemption status on the job descriptions REMEMBER job TITLES don t matter it s the actual DUTIES Prepare your managers! They should help determine the actual job duties of their exempt employees 15 Building a Smarter Workforce

16 Thinking ahead. Final Rule Will happen quickly Not much time to prepare start now! If the salary levels increases sharply what steps will you take? Increase all exempt employees to that minimum level if applicable? Change positions to non-exempt? Recordkeeping rules could create entire change of business practice Employee morale Reduce hours and hire more workers at lower rate? Overtime dollars NEXT STEPS: Start the conversations now! Review the DOL website for updates Start the review of job descriptions, current exempt status salary levels and actual job duties. 16 Building a Smarter Workforce

17 Another DOL change Workers Classifications DOL on July 15 th issued guidance on determining whether a worker is an employee or an independent contractor. Economics Reality Test 6 factors Determines if IC is economically independent on employer OR if worker is in business for him/herself Should be used within the definition of FLSA to employ Why is DOL concerned about this? (IRS is for tax purposes!) No employee protection (min wage/overtime/ benefits) Minimizes #s of employees for other purposes (think ACA) 17 Building a Smarter Workforce

18 The IRS ABC Test The IRS ABC test A = Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact. B = Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed. (not an integral part) C = Such individual is customarily engaged in an independently established trade, occupation, profession or business. 18 Building a Smarter Workforce

19 Economic Realities Test Factor #1 & #2 Whether the workers job is an integral part of the employer s business. A worker that performs activities that are an integral part of the employer s business is more likely to be dependent on the employer, and, therefore, should be classified as an employee. Whether the worker s managerial skill affects his or her opportunity for profit or loss; The focus of this factor is whether the worker s managerial skill can affect his or her opportunity for profit or loss. Employers should consider a worker s decision to hire others, purchase materials and equipment, advertise, rent space and manage timetables. 19 Building a Smarter Workforce

20 Economic Realities Test Factor #3 & #4 Whether the worker s and the employer s investments are comparable An independent contractor should make some investment and undertake at least some risk of loss if he or she is in business for himor herself. The investment should support a business beyond any particular job. These types of investments include furthering the business capacity to expand, reducing business cost structure and extending the reach of the independent contractor s market. Whether the work performed requires special skills and initiative; A worker s skills and initiative can be an indicator of economic independence. However, when considering a worker s skill, employers should consider the worker s business skills, judgement and initiative, rather than his or her technical skills, which are often required to perform the work 20 Building a Smarter Workforce

21 Economic Realities Test Factor #5 & #6 Whether the relationship between the worker and the employer is permanent or indefinite; Employment that is permanent or indefinite in character suggests that the worker is an employee. Most independent contractors will avoid permanent or indefinite work relationships and are usually hired to work until a job or a project is complete (even if this takes several months or years). Moreover, once a job or project is complete, the independent contractor does not necessarily continue to provide his or her services to the employer. An analysis of the nature and degree of the employer s control over the worker. An independent contractor controls meaningful aspects of the work he or she performs. This type of control should lead objective observers to conclude that the worker is conducting his or her own business. Control over meaningful aspects of the work may extend beyond controlling working hours and could include work schedules, dress code and task prioritization. The DOL asserts that this control cannot be theoretical and explains that what counts is not what the worker could have done, but what the worker actually does 21 Building a Smarter Workforce

22 Federal DOL and State of VT DOL partner Memorandum of Understanding Signed between two agencies Signed a three-year Memorandum of Understanding intended to protect employees' rights by preventing their misclassification as independent contractors or other nonemployee statuses. Under the agreement, both agencies may share information and coordinate law enforcement. 22 Building a Smarter Workforce

23 What should you do now? Communicate with AP Get list of Independent Contractors being paid outside of payroll W9s Contracts IC status Calculate employment costs if this NOT Independent Contractor. Change status? Hire worker? REVIEW VT LAWS!! 23 Building a Smarter Workforce

24 More changes to come? You can count on it! Keep on top of what is going on out there Newsletters Listservs Seminars/webinars/conferences 24 Building a Smarter Workforce

25 Thank You! Brenda JM Sabin, CBP, SPHR