FLSA: Raising the Bar for Employee Exemptions How Will It Affect Your Organization? Presented by John S. Gannon, Esq.

Agenda  Wage/Hour Basics  Proposed FLSA Regulations  Action Steps for Businesses  Questions?

Basic Wage/Hour Principles  The Fair Labor Standards Act (FLSA) is the federal statute that regulates wage and hour law  Requires payment of the federal minimum wage ($7.25) and guarantees compensation for all time worked, including overtime at time-and-a-half for all hours over 40 in a workweek

Basic Wage/Hour Principles (cont.)  Be aware of state and local minimum wage laws setting higher rate  Minimum wage increases have taken place across the country in 2015

Common Wage/Hour Mistakes  Misclassification of employees as exempt  Executive, administrative, professional, outside sales  Not paying for all hours worked  e.g., meal breaks, restrictive on-call time, travel, training, etc.  Not paying/miscalculating overtime

Common Wage/Hour Mistakes (cont.)  Treating employees as independent contractors  Employee status is presumed under MA law

Lay of the Land

DOL’s proposed revisions to the “white-collar” overtime exemptions and what the proposals, if adopted, will mean for employers

Certain Employees Are “Exempt” from Overtime Rules  White Collar Exemptions  Executive, administrative, professional, outside sales, computer employees  Must (currently!)  Be paid on a nonfluctuating salaried basis of at least $455 per week (except outside sales employees and some professionals); AND  Perform exempt duties

President Obama’s Directive  March 2014: President issues memo directing Secretary of Labor to “modernize and streamline” overtime rules  Goal: expand number of employees eligible for overtime

DOL’s Proposed Regulations  Announced by DOL June 30, 2015  Major change: more than double the minimum salary threshold for “white collar” exemptions  Provide for automatic annual updates of minimum salary threshold

DOL’s Proposed Regulations (cont.)  Notice of proposed rulemaking (NPRM) published July 6, 2015  60 days to comment  Final rule: Early 2016?

Salary Threshold Doubled  Currently $455/week ($23,660 annually)  Proposed: Increase to $921/week ($47,892 annually)  Expected to be $970/week ($50,440 annually) when final rule issues  Bottom line: Almost all employees making less than $50,440/year will need to be paid overtime premium

Why the Increase?  Last increase in 2004, before that 1975  According to DOL:  “The lapses between rulemakings have resulted in salary levels that are based on outdated salary data and thus ill-equipped to help employers assess which employees are unlikely to meet the duties tests for the exemptions”  New minimum salary threshold based on 40 th percentile of weekly earnings for full- time salaried workers

Automatic Annual Increases  Proposed regulation calls for automatic, annual increases tied to similar BLS statistics  DOL plans to publish a notice with the new salary level at least 60 days before the updated rates would become effective  Problems:  Regional wages across country  Some industries hit harder

Other Exemption Impacted  Highly compensated employee (HCE exemption)  Currently, paid $100,000/year (including bonus, commissions, etc.) AND  At least one duty is satisfied from any test  Proposed: increase to $122,148 (90 th percentile of full-time salary workers)

Discussion on Duties Tests  Proposed rule does not change any of the duties tests  DOL requested comments to determine whether duties tests also need to change  Minimum amount of time exempt employees spent on exempt duties (50% test)?  Focus is on lower-level executives (working supervisors, assistant managers)

Additional Comment Requests  Including nondiscretionary bonuses (commissions) when calculating minimum salary threshold  May only be used for 10% of income, must be paid at least monthly

Next Steps for Employers  Conduct an audit  Identify jobs that will be impacted by salary threshold change  Options:  Do nothing.  Pay overtime (time and a half) to currently exempt employees who are below the 40th percentile of weekly earnings for full-time salaried workers.

Options  Reclassify and limit overtime possibilities  Give raises  Reclassify and cut pay  Readjust wages down, taking into account the same number of hours worked per week and the overtime that you’ll have to pay as a result

Opportunity to Make Corrections  Good time to update job descriptions and correct classification mistakes  Use change in the regulations as “cover”

What to Do When You Find an Employee Has Been Misclassified  If misclassified as exempt, employer has obligation to pay overtime or other compensation owed to employee  Options:  Do nothing, but limit overtime going forward  Change to non-exempt and pay back for all overtime (How much? Can employee still sue?)

What to Do When You Find an Employee Has Been Misclassified  Options (cont.):  Make change prospectively  Determine exposure  Has the employee worked overtime?  How much?  How many employees are there in this job classification?  What records exist that would show hours of work?

Questions?

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