White Collar Exemptions – Changes Are a Coming … Maybe By Bryan LeMoine McMahon Berger PC

Agenda Discussion of new regulations related to white collar exemptions Likelihood of changes and potential scenarios “Coping mechanisms.” Increased audit risk and my list of what not to do. Questions and Discussion.

Who Is Covered by the FLSA? Enterprise with an annual gross volume of sales made or business done in excess of $500,000. Only activities for a business purpose are counted – if the activity is charitable, religious, educational or similar and where the activity is not in substantial competition with other businesses, the activity does not count towards the $500,000 limit.

White Collar Exemptions - Background If employees are working more than 40 hours in a work week, and if the employees do not qualify as “exempt,” then they must be paid overtime. The DOL is amending the “salary level” for all exemptions where the salary basis is in part used to determine exempt status. The salary basis test is used for professional, administrative, executive, and computer employees. It does not apply to outside sales employees or professional employees like teachers, doctors or lawyers. There is also an education administrative exemption.

“White Collar” Exemptions Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees who are employed in a bona fide: – Executive; – Administrative; – Professional; or – Outside Sales capacity. Certain computer employees may be exempt professionals under Section 13(a)(1) or exempt under Section 13(a)(17) of the FLSA.

What Does Salary Basis Mean? Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to exceptions, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Exempt employees do not need to be paid for any workweek in which they perform no work. If the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a “salary basis.” If the employee is ready, willing and able to work, deductions may not be made for time when work is not available. Current salary basis is $23,660.

The Proposed Regulations The DOL is setting the standard salary level at the 40 th percentile of weekly earnings for full-time salaried workers (estimated $970 per week or $50,440 annually) The DOL will increase the total annual compensation requirement for highly compensated workers from $100,000 to $122,148 (or the 90 th percentile of weekly earnings for full time salaried workers)

The Proposed Regulations (cont.) The DOL will establish a mechanism to automatically update the salary and compensation levels going forward in order for persons to meet the salary basis test.

What’s the Impact? Assuming these become final …. The DOL expects the 40 th percentile in 2016 for salaried workers to be $50,440. Thus, that’s the minimum a worker must be paid to be exempt. This amount will likely go up each year. Can businesses afford exempt employees now? Loss of full-time status or reduction in hourly rate to make up for overtime cost. Less flexibility for employees.

What Might Change Between Now and Finality? The DOL is seeking comment on whether nondiscretionary bonuses can be included for purposes of satisfying the salary basis test. There may be some impact on the duties test although the DOL has not confirmed that it will adjust the duties test without a comment period.

Will This Happen? No one knows but most agree that it will in some form or fashion. Comment period closed September 4, 2015 Rules must go through multiple federal agency reviews. Barring any legal or congressional challenges, the regulations will be published in the Federal Register and become effective on a date certain. Likely effective date in 2016.

Key Issues Hourly workers/non-exempt/part-time not impacted Use of electronic devices – The DOL is anticipated to issue a request for information seeking comments regarding the use of electronic devices by overtime-protected individuals – For now, work is work. Minimum wage issues.

Coping Mechanisms or How to Prepare Who will be affected? How? Evaluate budget impact to increase salaries. Identify pay for service funders and budget impact if services decrease. Evaluate job descriptions now to ensure that your current exempt employees are really exempt.

Coping Mechanisms or How to Prepare If you will be moving people to non-exempt positions when they were formerly exempt: – How will you keep track of their time? – What about their use of technology after working hours? – What work week should you use? – How will you communicate the changes and when will you? – Can you mitigate the change by ensuring people are more efficient and stay within 40 hours.

Coping Mechanisms or How to Prepare Training for formerly exempt employees on keeping track of time and consequences of “off the clock” work. Payroll changes due to movement from exempt to non-exempt status – some organizations pay non-exempt employees in arrears. Get your arms around travel time. What if your employees ask you for the raise?

Increased Audit Risks or My List of What Not to Do Do Not: – Fail to communicate with employees in advance of upcoming changes – Fail to solicit ideas from affected employees in terms of accomplishing work – Make employees independent contractors or hire independent contractors to do work formerly done by employees – Wait and see if the DOL is really going to do this and then react. – Start using “comp time.” – Underestimate the morale issue.

To Sum Up This is an opportunity to get a grip on overtime issues in your organization. “The FLSA ‘requires payment of minimum wages and overtime wages only,’ and ‘is unavailing where wages do not fall below the statutory minimum and hours do not rise above the overtime threshold.’” If your folks work less than 40 hours in a workweek, you don’t have to pay overtime.