1. Implementing Changes To The FLSA’s White-Collar Exemptions
SUSAN K. SAPP
JASON YUNGTUM/TARA STINGLEY

2. overview
What are the regulatory changes to the Fair Labor Standards Act?
What hasn’t changed?
What steps should be taken to implement the changes?
What challenges will your district face in implementing the changes?
How to overcome those challenges?
What opportunities do these changes present?

3. THE FAIR LABOR STANDARDS ACT
The Fair Labor Standards Act (“FLSA”) is a Federal law (29 U.S.C. § 201 et seq.) that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards for covered employers in the private and government sectors. It also establishes certain exemptions to minimum wage and overtime—including the white collar exemptions.
Employees of covered employers, unless otherwise exempt, must be paid at least minimum wage for all hours worked and overtime at time and one-half for hours worked over 40 in a workweek. Accurate tracking and recordkeeping of hours worked.

4. TEST FOR EXEMPTION
Generally speaking, to qualify for a white collar exemption, an employee must meet certain tests regarding the job duties performed AND must be paid on a sufficient salary basis.

5. TEST FOR EXEMPTION
Example – Requirements for Executive Exemption. To qualify for the executive employee exemption, all of the following tests must be met:
The employee must be compensated on a sufficient salary basis (as defined in the regulations);
The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
The employee must 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.

6. PROFESSIONAL EXEMPTION
DUTIES TEST:
PROFESSIONAL EXEMPTION
To satisfy the requirements for the professional exemption, the employee must be a “learned professional” who has gained equivalent knowledge and skills through a combination of job experience, military training, attending a technical school, or attending community colleges.

7. ADMINISTRATIVE EXEMPTION
DUTIES TEST:
ADMINISTRATIVE EXEMPTION
To administrative exemption requires that the employee perform approved work directly related to the employer’s management or general business operations and must exercise “discretion and independent judgment” with respect to matters of significance.

8. Special Provisions for Teachers
Teachers will not be affected by the Final Rule. The salary level and salary basis requirements do not apply to bona fide teachers. See 29 CFR (d), 600(e). Accordingly, the increase in the standard salary level in this Final Rule will not affect the overtime exemptions of bona fide teachers.

9. Special Provisions for Teachers
Teachers are exempt if their primary duty is teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment. See 29 CFR (b), 303.

10. Special Provisions for Academic Administrative Employees
There are special regulatory provisions for some administrative employees—known as “academic” administrative employees—whose primary duty is performing administrative functions directly related to academic instruction or training in a school. To be exempt, academic administrative employees must either be paid on a salary or fee basis of not less than the salary level, or be paid on a salary basis at least equal to the entrance salary for teachers in the same educational establishment.

11. Special Provisions for Academic Administrative Employees
Exempt academic administrative employees must have the primary duty of performing administrative functions directly related to academic instruction or training.

12. Special Provisions for Academic Administrative Employees
For example, academic counselors who perform work such as administering school testing programs, assisting students with academic problems, and advising students concerning graduation requirements would satisfy the duties test for this exemption.

13. Special Provisions for Academic Administrative Employees
Employees who work in education but whose work does not relate to the educational field are not performing academic administrative work. For example, if an employee’s work relates to general business operations, building management and maintenance, human resources, or the health of students and staff, the employee may meet the requirements for a different white collar exemption, but does not perform academic administrative functions.

14. SALARY BASIS TEST What does it mean to be paid on a salary basis?
The employee is paid the same amount each pay period regardless of the quality or quantity of the work performed, if any work is performed.
Limited exceptions (deductions for full day personal absences, deductions in accordance with bona fide sick leave plan, etc.).
See 29 CFR §

15. CURRENT SALARY AMOUNTS
What is the minimum (i.e. sufficient) amount of salary to be paid to qualify for the standard white collar exemptions under OLD regulations?
$455/week, which equates to $23,660/year
If using the Highly Compensated Employee exemption, the employee must receive the $455 weekly salary amount and his/her total annual compensation must be at least $100,000.
Nondiscretionary bonuses cannot be used to satisfy the salary amount.

16. WHAT IS CHANGING ON DECEMBER 1?
The minimum exempt salary for the white collar exemptions is increasing from $455/week or $23,660/ year to $913/week or $47,476/year.
The minimum exempt salary will automatically update (i.e. increase) every three years. It will be set at the 40th percentile of full-time salaried workers in the lowest income region of the country, which is currently the South. Thus, this will be an ongoing compliance issue - ensuring salaries fall above the minimum salary amount to maintain the exemption. The next update will be on Jan. 1, 2020, and current projections put that figure at $51,168/year.

17. WHAT IS CHANGING ON DECEMBER 1?
Districts will now be able to use non-discretionary bonuses, incentives, and commissions to account for up to 10% ($4,747) of the salary requirement, if paid on at least a quarterly basis. But this does not apply to highly compensated employees. Examples: bonus for meeting production/profit goals, retention bonuses, commission payments based on fixed formula. Must be set/objective.
The highly compensated employee exemption threshold has increased from $100,000/year to $134,004/year.

18. WHAT IS NOT CHANGING ON DECEMBER 1?
Duties test remains unchanged.
There was much discussion about whether the duties tests would be modified, particularly with regards to what is a “primary duty.”
Under the current regulations, the term “primary duty” means “the principal, main, major or most important duty that the employee performs.” Many factors are looked at, including relative importance of the duty, time spent performing exempt work, supervision, etc.
Time spent is a useful guide (and I am more comfortable when exempt work takes more than 50% of the time), but it is not the sole test. See 29 CFR
Tabled FOR NOW.

19. WHAT IS NOT CHANGING ON DECEMBER 1?
No additional slack on showing the employee meets the duties requirements, just because they are paid more now.
An employer can increase an employee’s salary above the new threshold and the employee may still not be properly exempt, depending upon their actual job duties. The same concerns/issues are still present.

20. IMPLEMENTING THE CHANGES: IDENTIFYING AND ADDRESSING THE AFFECTED EMPLOYEES
STEP 1: Identify exempt employees’ whose pay currently falls between the previous threshold ($23,600/year) and the new threshold ($47,476/year), or are highly compensated employees and make between the old ($100,000) and new ($134,004) thresholds. These are the employees from whom adjustments will be needed.

21. IMPLEMENTING THE CHANGES: IDENTIFYING AND ADDRESSING THE AFFECTED EMPLOYEES
STEP 2: Make a financial/practical assessment of the affected employees.
How much are they currently paid? Near the threshold?
How many hours are they generally working (if you know; if not start tracking)?
Based upon expected workload, what are anticipated overtime costs if the employee becomes non-exempt?
Can hours be limited to 40 per week and accomplish necessary tasks?
Are there any quarterly, nondiscretionary bonuses, incentives, or commissions that can help close the gap?
Consistency?
Ongoing chasing of the threshold?
Was the previous classification correct?

22. IMPLEMENTING THE CHANGES
STEP 3: Make a decision on the affected employees—whether to keep them exempt and adjust their pay accordingly or move them to non-exempt status adjust their pay accordingly.
STEP 4: Communicate the changes to employees. (More on this later)

23. IMPLEMENTING THE CHANGES
STEP 5: If an employee is changed from exempt to non-exempt, they will need training and reminders on tracking time and life as a non-exempt employee.
Record time
Approval to work overtime?
Adjust work routines: No working through lunch or staying late
No working off the clock
Smartphones and access!!!!!
BIG CHALLENGE IS CHANGING HABITS.

24. POTENTIAL OPTIONS Increase the salary to make them exempt.
Move to non-exempt, pay them hourly, and pay them overtime over 40 hours per week. Limit OT to control costs.
Move to non-exempt, pay them hourly, and reduce the hourly rate so that total compensation with OT remains the same.

25. POTENTIAL OPTIONS Move to non-exempt, pay on salary, but pay for OT.
Hire part time workers to offset reduced workload of employees now working less.
Reduce benefits and/or other costs?

26. Example: A district safety officer is paid a salary of $45,000
Example: A district safety officer is paid a salary of $45, a year. The officer’s job duties qualify him for the administrative (but not academic administrative) exemption. The officer regularly works overtime as a result of outreach activities. The employer may choose to raise the officer’s salary to $47,476 a year to maintain the counselor’s administrative exemption.

27. Example: Alexa, a maintenance director at a district, earns a fixed salary of $41,600 per year ($800 per week) for a 40-hour workweek. Because her salary is for 40 hours per week, Alexa’s regular rate is $20 per hour. If Alexa works 45 hours one particular week, the employer would pay time and one-half (overtime premium) for five hours at a rate of $30/hour. Thus, for that week, Alexa should be paid $950 consisting of her $800 per week salary and $150 overtime compensation.

28. Example: Jamie, an HR manager at a district, earns a fixed salary of $44,200 per year ($850) per week) for a 50 hour workweek. The salary does not include the overtime premium. Because the salary is for 50 hours per week, Jamie’s regular rate is $17 ($850/50). In a normal 50-hour week, the employer would pay Jamie the additional half time overtime premium for the 10 hours of overtime ($8.50 per hour). If Jamie worked more than 50 hours in a week, the employer would also owe overtime compensation at time and a half the regular rate ($17 x 1.5) for hours beyond 50 (because the salary does not cover any payment for those hours).

29. Example: Andre, a sports information director, has an agreement with the district where he is paid a fixed salary of $39,520 per year ($760 per week) for a 45 hour workweek. The fixed salary includes both straight time for the first 40 hours ($16 regular rate x 40 hours) and overtime compensation for hours ($24 overtime rate x 5 hours). If Andre’s schedule changes in any way for any week, his salary needs to be adjusted for that week to reflect the hours actually worked.

30. Example: Assume an administrative assistant earns $37,000 per year ($ per week). The assistant regularly works 45 hours per week. The employer may choose to instead pay the employee an hourly rate of $15 and pay time and one-half for the 5 overtime hours worked each week.
$ (40 hours x $15/hr.)
(5 OT hours x $15 x 1.5)
$ per week

31. Alternatively, the employer may choose to pay that employee a salary for 40 hours of $600 and pay the overtime for hours in excess of 40 per week.
$ (salary for 40 hrs/week, = $15/hour)
(5 OT hours x $15 x 1.5)
$ per week

32. Compensatory Time
School Districts qualify as a “public agency” under the FLSA and may compensate overtime-eligible employees through the use of compensatory time off (or “comp time”) in lieu of cash overtime.

33. Compensatory Time
Districts, however, must provide comp time at a rate not less than one and one-half times the regular rate at which the employee is actually employed. Note that overtime-eligible employees generally may not accrue more than 240 hours of comp time, but employees engaged to work in a public safety activity, an emergency response activity, or a seasonal activity may accrue as much as 480 hours of comp time. See 29 U.S.C. 207(o)(3)(A).

34. Compensatory Time
Example: A head custodian earns $38,000 a year. He has a written agreement that he will receive compensatory time at a rate of time and one-half for every overtime hour worked instead of overtime pay in cash. During a two-week period when work is heavy, he works 50 hours each of the two weeks and accumulates 20 hours of overtime, resulting in 30 hours of available comp time. He then uses the comp time to take time off later in the year. This arrangement is permissible.

35. OVERCOMING EMPLOYEE CONCERNS
How you communicate the changes, the reasons for the changes, and their effects will have a huge impact on how well the changes are received.
Common Concerns for Employees Moving to Non-Exempt Status
Demotion?
Response: How pay is calculated, not their relative position.
Advancement?
Response: Career path unchanged?
Make Less $?
Response: Paid for every hour worked, including OT.
Response: Moving to Hourly? How does the math work out? Equivalent?
Response: Staying at Salary but paying OT?
Loss of Flexibility
Response: Recording time means being paid for every hour worked, including OT.

36. OTHER COMMUNICATION TIPS
Who is the point person for the communication? Consider someone other than employee’s manager. HR?
Clearly explain that the changes are needed because of changes by the federal government. Not a performance issue. Objectively required.
Emphasize paid for every hour worked.

37. OTHER COMMUNICATION TIPS
Train your Managers and Supervisors on the changes, especially if they will be working newly non-exempt employees.
Train newly non-exempt employees on timekeeping requirements. Follow up and be proactive. Don’t let old habits perpetuate, like working extra hours, not tracking time, etc.

38. OPPORTUNITIES?
Opportunity to conduct a full review of classifications and job descriptions. Are job descriptions accurate? Are classifications appropriate?
Cover: Does the district have a classification decision or change they want to make? Making a classification change out of the blue often raises eyebrows. The regulatory changes provide plausible cover.

39. Questions?
SUSAN K. SAPP