1. DOL Final Rule White Collar Exemptions What Employers Need to Know By Scott Skelton 1

2. Disclaimer The information and opinions presented today should not be considered legal or accounting advice for your particular business situation or needs. Each situation is different and must be thoroughly evaluated based upon its own unique circumstances. 2

3. December 1, 2016 3

4. Overview of FLSA Requires payment of Minimum Wage and Overtime, subject to exemptions. Application: – Businesses with over $500,000 Gross Revenue; or – Business involved in Interstate Commerce. 4

5. What is Interstate Commerce? Examples: Mails Telephone Handle, Ship, Receive Goods Moving in Interstate Commerce Cross State Line for Employment Use a credit card machine 5

6. Change #1: Standard Salary Increase $47,476 [$913 per week] $23,660 [$455 per week] 6

7. Standard Duties Test Executive – “primary duty” must be managing the enterprise, or managing the customarily recognized department or subdivision of the enterprise (and managing 2 full time employees). 7

8. Standard Duties Test Administrative – The employee’s “primary duty” must include the exercise of discretion and independent judgment with respect to matters of significance. 8

9. Standard Duties Test Professional – “primary duty” must be to primarily perform work that either requires advanced knowledge in a field of science or learning or requires invention, imagination or originality or talent in a recognized field or creative endeavor. 9

10. Change #2: Highly Compensated Employees Threshold Will Increase $134,004 [$2,577 per week] $100,000 [$1,923.07 per week] 10

11. HCE 1.The employee earns total annual compensation of $134,004 or more; 2.The employee’s primary duty includes performing office or non-manual work; and 3.The employee customarily performs at least one of he exempt duties or responsibilities of an exempt executive, administrative or professional employee. 11

12. Change #3: Salary Level Will Increase Automatically Every Three Years Next Increase: January, 2020 DOL Estimates: $51,168 for standard salary and $147,524 for HCE. DOL will announce increase 150 days prior [Early August 2019]. 12

13. Change #4: Employers Permitted to Use Incentive Compensation to Partially meet Salary Level Requirement Salary + Incentive Comp = $47,476 Incentive Comp Limit: 10% [$2,728.40; $821.70 per week required] Incentive Compensation: Commissions Non-Discretionary Bonuses Other Incentive Payments 13

14. Use of Incentive Compensation to Satisfy Salary Level 10% Rule applied on a Quarterly Basis (or more frequently, such as monthly) DOL will permit “catch-up” payments if incentive compensation is too low. - Must be paid within the next pay period 10% rule does not Apply to HCE. 14

15. Misconceptions The Final Rule does not affect other exemptions! – No Change to Outside Sales Exemption [NSR] – Does not affect professional exemptions as it relates to teachers, doctors, and lawyers [NSR] Non-Exempt employees are not required to be paid hourly and can be paid a salary (just requires overtime pay if work more than 40 hours in a week). 15

16. Misconceptions Does not change rules relating to payment of non-exempt employees. Does not require changes in pay to employees who do not work overtime – i.e. part-timers. Rule Applies to Higher Education Employers. 16

17. Impact on Non-Profits Organizations No new exemptions or concessions for non-profits. Commenters request clarification as to how the FLSA applies to non-profits. Volunteers: – Should not perform work that would otherwise be performed by employees. – Employees may not volunteer in commercial activities run by a non-profit. 17

18. Non-Enforcement Period for Certain Providers of Medicaid-funded Services Applies only to providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in: (1) residential homes; or (2) facilities with 15 or fewer beds. DOL will not bring enforcement actions, based on the updated salary threshold, through March 17, 2019. Protection from civil lawsuits? 18

19. December 1, 2016 19

20. Strategies Identify Employees who no longer meet the salary level test. 20

21. Strategies Option 1: Increase salary level (assuming employees satisfy duties test). 21

22. Strategies But will you just absorb the cost? – Reduce variable compensation? – Reduce fringe benefits? – Delay promotions? May impact other exempt employees above the salary level – does it cause a global adjustment? 22

23. Strategies Option 2: Reclassify as non-exempt and overtime eligible and pay overtime. Option 2.1: Reclassify as non-exempt and….. – Adjust hourly rate to account for anticipated overtime so reclassification cost is neutral (e.g. $800 per week = $14.54 / hr. At 50 hrs. / week; but don’t set rate by dividing by current salary by 40 which equals $20 / hr.). 23

24. Strategies Option 3: Reduce hours to avoid overtime and shift work to other workers. Option 4: Hire more part time workers. Take a 60 hour job and make it two 30 hour jobs without overtime. (Be aware how this may or may not change fringe benefits.) 24

25. Opportunities Excellent time to conduct a wage and hour audit. 25

26. Scott Skelton sskelton@skeltonslusher.com 936.632.2300 – Office 936.635.8407 – Cell 26