Federal Law Update. The New FLSA Overtime Exemption Rules. AIM HR Solutions. Presented by : Russ Sullivan. www. aim net. org

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1 Federal Law Update The New FLSA Overtime Exemption Rules Presented by : Russ Sullivan AIM HR #AIMHR blog.aimnet.org www. aim net. org

2 Session Overview Challenges to the New Rule Effective Date What Is Changing What Is Not Changing Reviewing your Organization Communicating with Employees Challenging Discussions Duties Tests Compliance Checklist A Note About Pay Equity

3 Challenges to the New Rule Legislative Challenges House bill passed to delay effective date 6 months (June 1, 2017) Senate would need to approve Both houses would need 2/3 vote to override veto Legal Challenges 21 states filed in Texas for an injunction FLSA does state a salary threshold test DOL doesn t have authority to index salary threshold going forward Violates Tenth Amendment by setting rates that state government must pay Possible results Salary threshold has been in place since 1940 and has been updated several times Indexing impacts 2020, not 2017 Private employers not impacted by 10 th Amendment

4 Effective Date Thursday, December 1, 2016 Back up to start of payroll cycle prior to December 1 November 21, 2016 November 28, 2016 To be completed prior to effective date Pay adjustments made Employee communication Manager training Pay adjustments determined Employee classification determined

5 Fair Labor Standards Act Applies to Businesses or enterprises with at least $500k in annual sales All employers engaged in interstate commerce (regardless of annual sales) Requires OT after 40 hours worked unless exempted Exemption Tests Salary Basis Duties Test Salary Threshold Must pass all three tests

6 What is Changing Salary threshold test Raise the salary threshold from $23,660 to $47,476 a year from $455 to $913 a week Update the salary threshold every three years. 40 th Percentile of lowest income region in the US (currently the South) Threshold is projected to rise to more than $51,000 with the first update on January 1, 2020 Raise the highly compensated employee threshold from $100,000 to $134,004 Above which only a minimal showing is needed to demonstrate an employee is not eligible for overtime Allowing nondiscretionary bonuses and incentive payments to count toward up to 10 percent of the new salary level Effective 12/1/16

7 What is Changing Bonuses, Salary Catch-up Bonuses Employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level amount (i.e. up to $91 of the $913 per week threshold). Payments must be paid on a quarterly or more frequent basis to count towards the salary level test.

8 What is Changing Bonuses, Salary Catch-up Bonuses Discretionary Bonuses Don t Count Discretionary bonuses made at employers sole discretion cannot be used to satisfy the salary level requirement. i.e. any bonus paid without prior contract, promise, or announcement, and not for a set amount will not count

9 What is Changing Bonuses, Salary Catch-up Catch-up If an employee does not earn enough of a qualifying bonus or incentive payment in a given quarter to meet the standard salary level, an employer may make a catch-up payment no later than the next pay period after the end of the quarter. Any such catch-up payment counts only toward the prior quarter s salary.

10 What Is Not Changing Salary Basis Test Employee paid a salary per pay period Deductions from pay allowed for Full day absence for personal reasons or sickness Disciplinary actions for workplace or safety violations Offset amounts received for jury duty, witness fees or military pay First or last week of employment Unpaid leave under FMLA

11 What Is Not Changing Duties Test Executives Professional Learned Creative Computer Professionals Administrative Outside Sales

12 Reviewing Your Organization Duties Test is not changing, but now is the time to ensure exempt employees pass the test Run a report of all employees classified as exempt with salaries < : $47,476 annually $1,826 biweekly $913 weekly Determine the cost to increase their salaries to the above amounts Communicate the impact to senior management Provide either/or scenario Either we increase salaries by $x,xxx.xx, or we will need to reclassify the following number of employees (by classification/dept) Determine who will need to be reclassified

13 Reviewing Your Organization 100% Affected Employees 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% $20,800 $22,750 $25,594 $28,793 $32,392 $36,441 $40,996 $47,476 $53,411 $60,087 $67,598 $76,047 Maximum of Salary Range NonExempt Exempt

14 Reviewing Your Organization Potentially affected employee groups Front line supervisors Administrative exemptions in Customer Service, Production & Materials Planning Accounting Professionals Recent college graduates engineers, accountants, etc.

15 Reviewing Your Organization If reclassifying Determine how you will convert the salary to an hourly rate Convert to hourly rate and pay time-and-one-half for hours > 40 Pay on salary basis for 40 hours (salaried nonexempt) and time-andone-half for hours > 40 a Pay on a salary basis that includes hours > 40 at time-and-one-half b

16 Reviewing Your Organization If reclassifying Determine how you will track hours Clock system Computer log-in Manual reporting Determine new work rules (or extend existing ones) Work from home Off-hours work Pre-approval of overtime Reminder can t deny pay for time worked, can counsel/discipline for working without prior approval Update job descriptions to reflect new duties & responsibilities and other changes

17 Reviewing Your Organization If reclassifying Train managers & supervisors* Why the change is being made When it will be effective (no later than ) Whom it affects Time tracking / work rules Their role in communicating / complying Determine a communications strategy * Remember, some supervisors might be moving to nonexempt status

18 Communicating with Employees Employee Concerns Perceived Loss of Status No longer part of the management team Career advancement limitations Feeling that change = demotion Work Balance Issues / Loss of Flexibility Working from home Arriving early and working before scheduled start of shift Staying late to compete work Responding to s off hours Comp Time

19 Communicating with Employees Employee Concerns (continued) Administrative Requirements Tracking hours / punching in/out New work rules OT, meal breaks, travel, etc. Change in benefits Loss of time-off benefits Sick leave banks Vacation accruals Disability benefits

20 Communicating with Employees Communication Strategy Who will communicate with affected employees? Immediate supervisor Department / Functional Manager CEO Human Resources How will the message be delivered? One-on-one Group meetings Remote employees Company written communication When will the message be delivered? Prior to payroll period that includes December 1, 2016 Leave time for follow-up meetings and possible adjustments

21 Communicating with Employees Communication Strategy What is the message? Acknowledge employee perceptions Address misperceptions Explain company s decision Explain what it means for the employee Ask for questions / concerns

22 Communicating with Employees The Message Explain company s decision Nothing has changed in how we perceive your value What has changed is a law to which the company must comply Emphasize company s commitment to legal compliance = its commitment to being a workplace that values its employees Compliance with law has not changed What it means for the employee Their new pay rate How they will track hours How overtime will be approved When benefits changes will take place

23 Duties Test - Executive Primary duty and managing the enterprise, or a recognized department or subdivision; customarily and regularly direct the work of at least two or more other F-T employees or their equivalent; and 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.

24 Duties Test - Executive Interview, select, and train employees? Coach employees in proper job performance techniques and procedures? Direct the work of employees and set/adjust their rates of pay and hours of work? Maintain records on employee productivity for use in supervision or control? Appraise employees productivity and efficiency to recommend promotions or other changes in status? Handle employee complaints and grievances and discipline employees when necessary? Plan other employees work and determine the techniques used in their work? Apportion work among different employees? Determine the types of materials, supplies, or tools to be used by other employees? Control the flow and distribution of materials and supplies? Provide for the safety of employees and the property of the employer? Control the budget? Monitor or implement legal compliance measures?

25 Duties Test - Administrative Primary duty and 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; The employee s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

26 Duties Test - Administrative Have the authority to formulate, affect, interpret, or implement management policies or operating practices? Carry out major assignments in conducting the operations of the employer? Perform work that affects business operations to a substantial degree? Have the authority to commit the organization in matters that have significant financial impact? Have authority to waive or deviate from established policies and procedures without prior approval? Provide consultation or expert advice to management? Have authority to negotiate and bind the organization on significant matters? Have involvement in planning long or short-term business objectives? Investigate and resolve matter of significance on behalf of management? Represent the organization in handling complaints, arbitrating disputes or resolving grievances?

27 Duties Test - Professional Primary duty and 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.

28 Duties Test Creative Professional Primary duty the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

29 Duties Test Computer Employee Computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field Primary duty 1) The application of systems analysis techniques and procedures; 2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes; 3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or 4) A combination of the aforementioned duties, the performance of which requires the same level of skills.

30 Duties Test Outside Sales Primary duty and making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; must be customarily and regularly engaged away from the employer s place or places of business

31 Checklist Identify current exempt employees earning < $ / week Identify highly compensated employees performing nonexempt duties Determine if you will adjust salaries or convert to nonexempt If converting to nonexempt, will you set hourly rate by scheduled hours or actual hours? Determine staffing impact cost of additional staff vs. overtime costs Identify benefits impact, if any Identify impact n career paths, if any Select time tracking method Educate managers on exempt vs. nonexempt differences Determine communication strategy Manage the employee communication to minimize back wage claims Establish overtime approval procedures Monitor work from home, travel, off-hours work Budget for increases to the salary threshold every three years

32 A Note About Pay Equity Effective date July 1, 2018 No employer shall Inquiries require, as a condition of employment, that an employee refrain from inquiring about, discussing or disclosing information about either the employee s own wages, or about any other employee s wages. Pay History Pay seek the wage or salary history of any prospective employee from the prospective employee or any current or former employer discriminate in any way on the basis of gender in the payment of wages, or pay any person in its employ a salary or wage rate less than the rates paid to its employees of a different gender for comparable work

33 Pay Equity Comparable Work Comparable work Work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions; provided, however, that a job title or job description alone shall not determine comparability. Skill education, experience, training, decision-making, influence Effort mental, visual, physical Responsibility people, revenue, expense, process, material, equipment Working conditions the environmental and other similar circumstances customarily taken into consideration in setting salary or wages, including, but not limited to, reasonable shift differentials, and the physical surroundings and hazards encountered by employees performing a job. Wages all forms of remuneration for employment

34 Pay Equity Six Allowable Reasons for Pay Variations a system that rewards seniority with the employer; provided, however, that time spent on leave due to a pregnancy-related condition and protected parental, family and medical leave, shall not reduce seniority; a merit system; a system which measures earnings by quantity or quality of production, sales, or revenue; the geographic location in which a job is performed; education, training or experience to the extent such factors are reasonably related to the particular job in question travel, if the travel is a regular and necessary condition of the particular job

35 Pay Discrimination Claims Damages The amount of the employee s unpaid wages Liquidated damages - an additional, equal amount Attorney s fees Damages under state law offset against damages under federal law Action may be brought by 1 or more employees for and on their own behalf, 1 or more employees on behalf of other employees similarly situated (class action) Attorney General s Office Also retaliation protections for those who bring complaint or indicate an intent to do so

36 Employer Safe Harbor Law provides 3 year safe harbor for employers who conduct a selfevaluation of reasonable scope and detail An employer s self-evaluation of pay practices will be an affirmative defense to any claim if Done within the previous 3 years and prior to the commencement of the action Completed in good faith Can demonstrate reasonable progress towards eliminating wage differentials based on gender for comparable work Safe harbor applies to violations that occur Prior to the evaluation Within 6 months of the evaluation Within 2 years of the evaluation if employer has begun addressing in good faith the issues identified

37 Job Descriptions Should reflect Skills Effort Responsibilities Working Conditions FLSA Status Each sentence should state The education, experience, training, decision-making, influence needed to impact people, revenue, expense, process, material, equipment Example Relies upon an advanced knowledge of electrical engineering theory to independently design original schematics to support enhancements for product lines generating in excess of $30 million in revenue

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39 We can help to Train your front-line managers Review positions for FLSA compliance Provide onsite consulting services Contact our Employer s Hotline for more information. AIM Employers Hotline

40 Thank You Associated Industries of Massachusetts One Beacon Street, Boston, MA or