1. O VERTIME “P ROTECTION ” ON THE W AY : P REPARE N OW TO P ROTECT Y OUR B OTTOM L INE Missy McJunkins Duke Cross, Gunter, Witherspoon & Galchus, P.C. 500 President Clinton Avenue, Suite 200 Little Rock, Arkansas 72201 (501) 371-9999 mduke@cgwg.com http://www.cgwg.com

2. Topics Brief review of current law What the proposed rule includes How to prepare 2

3. Review of FLSA Basics Fair Labor Standards Act (FLSA) – federal law governing wage and hour issues Remember: state wage and hour laws Start with presumption that all employees are nonexempt (non-exempt = overtime pay for all hours worked over 40 in a work week (NOTE: comp pay for public employers only)) Two parts to being exempt  Must be paid on a salary basis AND  Must meet the duties tests 3

4. Review of FLSA Basics White Collar Exemptions  Executive  Administrative  Professional  Learned professionals  Creative professionals  Teachers in a school system  Computer Employees  Outside Sales Employees 4

5. Executive Employees Salary:  $455 per week or equivalent Duties:  Primary duty is of the management of the enterprise or a recognized department or subdivision.  Customarily and regularly directs the work of two or more other employees.  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. 5

6. Administrative Employees Salary:  $455 per week or equivalent Duties:  Primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.  Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 6

7. Directly Related to Management or General Business Operations Tax Finance Accounting Budgeting Auditing Insurance Quality control Purchasing Procurement Advertising Marketing Research Employee Benefits Labor Relations Public Relations Government Relations Computer Network Internet & Database administration Legal & Regulatory Compliance Safety & Health Personnel Management Human Resources Examples include work in functional areas such as: 7

8. Three Categories of Professional Employees Under the FLSA Employees in a field of science/learning, including lawyers, doctors, nurses, CPAs, architects, engineers, etc. Employees performing work that is original and creative in character, such as artists, musicians, designers, etc. Teachers in an educational establishment 8

9. The Learned Professional Exemption Most must be paid on salary of at least $455/week or equivalent Primary duty test has 3 elements:  The employee must perform work requiring advanced knowledge;  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. 9

10. Creative Professional Employees Salary:  $455 per week or equivalent Duties:  Primary duty of performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. 10

11. Creative Professional Examples Actors Musicians Composers Novelists Conductors Soloists 11

12. Teachers The term “employee employed in a bona fide professional capacity” also includes:  Employee with a primary duty of teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge AND  Who is employed and engaged as a teacher in an educational establishment NOTE: Salary requirements do not apply 12

13. Computer Employees Exemption Salary:  $455 per week or $27.63 an hour or equivalent Duties:  Primary duty of:  (A) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional applications; or 13

14. Computer Employees Duties (cont.)  (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. 14

15. Outside Sales Exemption The employee’s primary duty must be making sales (as defined in the FLSA), 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; and The employee must be customarily and regularly engaged away from the employer’s place or places of business. 15

16. Review of FLSA Basics Salary Basis  The compensation component is defined for executive, administrative, and professional employees by the salary basis test.  The DOL uses this test to separate exempt and non-exempt employees. 16

17. Review of FLSA Basics The Salary Basis Test  Exempt employees must be paid on a salary basis.  Currently, salary must be equal to at least $23,660 per year ($455 week).  Cannot be paid hourly wages.  An employee is paid on a salary basis if he regularly receives each pay period a predetermined amount constituting all or part of the employee’s compensation.  The amount is not subject to change, regardless of the quality or quantity of work performed in a given week. (NOTE: There are limited exceptions to no docking rule.) 17

18. Review of FLSA Basics When can an employer dock the salary of an exempt employee and not violate the salary basis test?  When an exempt employee is absent from work for a FULL DAY for personal reasons, other than sickness or disability;  For absences of a FULL DAY or more occasioned by sickness or disability (including work-related accidents);  When an exempt employee violates safety rules of major significance;  When an exempt employee is in good faith suspended for a full day or more for infractions of workplace conduct rules; 18

19. Review of FLSA Basics When can an employer dock the salary of an exempt employee and not violate the salary basis test?  For initial and terminal weeks of employment; and  When an exempt employee takes unpaid leave under the FMLA. 19

20. Review of FLSA Basics Highly Compensated Employees  If have employee with total annual compensation of at least $100,000, the employee will be deemed exempt as long as the employee regularly performs at least 1 of the exempt duties of an executive, administrative, or professional employee  The total annual compensation must include at least $455/week paid on salary basis. Remainder may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation.  Applies only to those employees performing office or non- manual work. 20

21. Proposed Rule Released on June 30, 2015 Published in Federal Register on July 6, 2015 60 day comment period ended on September 4, 2015 DOL sent Final Rule to OMB on March 14, 2016 OMB review is last step in regulatory process before publication in Federal Register Average review time approximately 5 weeks 21

22. Proposed Rule Increases the minimum salary to $50,440/year (or $970/week).  This is what the DOL believes will be the 40th percentile of weekly earnings for full-time salaried workers in 2016 based on 2013 data from the Bureau of Labor Statistics. Increases the total annual compensation of the highly compensated employee to $122,148/year  This is the annualized value of the 90th percentile of weekly earnings of full-time salaried workers 22

23. Proposed Rule Establishes a mechanism for automatically updating the salary levels each year based on either the percentile or inflation Final Rule may be published spring/early summer 23

24. Proposed Rule President Obama stated that the increased salary level will result in 5 million additional workers being eligible for overtime pay. The Notice of Proposed Rulemaking indicated that the proposed increase salary level would result in transfer of income from employers to employees of between $1.1 and $1.2 billion per year. 24

25. Proposed Rule The DOL also asked for comments on the possibility of including nondiscretionary bonuses to satisfy part of the minimum salary amount. 25

26. Proposed Rule Duties Tests  The DOL did not propose regulatory changes “at this time” to the duties tests.  Instead, the DOL asked for comments on whether adjustments to the duties tests are necessary in light of the proposed change in the salary level test.  The DOL has specifically requested comments on the following:  What, if any, changes should be made to the duties tests?  Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be? 26

27. Proposed Rule  The DOL specifically requested comments on the following:  Should the DOL look to the State of California's law (requiring that 50% of an employee's time be spent exclusively on work that is the employee's primary duty) as a model? Is some other threshold that is less than 50% of an employee's time worked a better indicator of the realities of the workplace today?  Does the single standard duties test for each exemption category appropriately distinguish between exempt and non-exempt employees? Should the DOL reconsider its decision to eliminate the long/short duties tests structure? 27

28. Proposed Rule  The DOL specifically requested comments on the following:  Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and non-exempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of non- exempt work? To what extent are exempt lower-level executive employees performing non-exempt work? 28

29. Proposed Rule  The DOL is considering whether to add to the regulations examples of additional occupations to provide guidance on how the exemption standards might apply to specific occupations.  The DOL specifically stated that while help desk employees don’t qualify for an exemption, the DOL wants comments from those in the computer and information technology sectors as to what additional occupational titles/categories should be included as examples in the regulations. 29

30. Proposed Rule - Impact What does this proposed change mean for employers whose employees earn less than the new proposed amount?  When the final rule is implemented, employers must either:  (1) raise the salaries of exempt employees to the new minimum amount, or  (2) choose to treat those employees as non-exempt and pay them overtime pay. 30

31. Plan of Action What should you be doing now?  Analyze whether you have properly classified your exempt employees  Are your exempt employees performing the duties required under the regulations?  Do their job descriptions reflect their duties?  Are you prepared for possible changes to the duties tests in the final rule? 31

32. Plan of Action  Evaluate whether you have established policies and practices to help avoid investigations and lawsuits  Policies Mandate accurate time keeping by employees Discipline for falsification of time records Signed time card/sheet certifies that time recorded is accurate Require prior authorization for overtime Unauthorized overtime grounds for discipline Salary Basis Safe Harbor Specific requirements for meal breaks and rest breaks Off-the-clock time Process for reporting time worked off-the-clock Require that employees check paychecks/paystubs for errors 32

33. Plan of Action  Training HR/Accounting Supervisors Monitor that employees are working all the claimed hours Also monitor that they are not working unreported hours Employees  Recordkeeping Retain payroll records for as long as possible Retain backup documentation, e.g. time cards, schedules, etc., for as long as possible for as long as possible Records must be available for inspection by DOL with 72 hours of notice 33

34. Plan of Action  Internal Audits Review your employees’ exemption classifications Review records and policies Make sure that hours are being properly calculated and classified Check job descriptions Time Records Spot reviews insufficient 34

35. Common Criticisms of the Proposed Rules 35 A “one size fits all” salary level does not account for important differences among employers, industries, and geographic regions. Will 5 million workers (or more by some estimates) earn more money under the proposed rules? Will workplace morale take a hit under the proposed rules? Automatic, annual increases to the salary level impose further burdens on employers and automatic increases ignore economic realities. Do the proposed rules “modernize and streamline” the exemptions? Was the 60-day comment period long enough?

36. Arguments in Favor of the Proposed Rules 36 Statistics indicate that Americans are working longer hours and businesses are more productive, yet wages are not increasing at a corresponding rate. Current salary threshold is too low. Imposing overtime requirements protects an employee’s time with his or her family. Disproportionate impact on women, African-Americans, Hispanics, workers under the age of 35, and workers with lower levels of education.

37. Litigation/Enforcement Facts & Figures Between 2001 and 2014—over 500% increase in FLSA collective actions in federal court. An overwhelming majority of all federal and state court employment law class/collective actions are wage & hour class or collective actions. 37

38. Litigation/Enforcement Facts & Figures In 2014, wage & hour litigation continued its trend of outpacing all other types of workplace class actions. Collective actions pursued in federal court under the FLSA outnumbered all other types of private class actions in employment-related cases. 7,964 FLSA cases filed in 2014. 3.3% increase from 2013 (7,708 cases). Only 397 cases filed in 2001. 38

39. Questions? Missy McJunkins Duke Cross, Gunter, Witherspoon & Galchus, P.C. 500 President Clinton Avenue, Suite 200 Little Rock, AR 72201 (501) 371-9999 mduke@cgwg.com http://www.cgwg.com 39