1. The NEW White Collar Exemption Rule: How to Prepare
Friday, November 11, 2016

2. Erin R. Nathan (319) 896-4013 enathan@simmonsperrine.com
Today’s Presenter:
Erin R. Nathan (319)
Welcome to today’s Simmons Perrine Moyer Bergman webinar regarding the specifics of the new final rule on white collar exemptions and strategies on how to comply with the new rule. My name is Juli Gotto and I am the marketing director with the firm and moderator for today’s webinar.
Some of you may already know today’s presenter,  Erin Nathan, but for those of you who aren’t familiar, Erin is partner in our labor and employment group.  She represents and counsels businesses and individuals on employment issues, such as employment policies, handbooks, hiring and terminations, and compliance with the FLSA, ADA, FMLA, NLRA and anti-discrimination laws, like Title VII and the Iowa Civil Rights Act. She handles matters in state and federal court and before the Equal Employment Opportunity Commission and other state and local governmental agencies, as well as before arbitration tribunals.
Today’s webinar was approved for 1 hour of Continuing Legal Education Credit with the activity number listed on your screen. It will also be included in the follow-up you’ll receive later today.
Your phone lines are muted for today’s program. You may ask questions using the Q&A feature, but due to  time constraints and the potential for very specific questions, Erin will follow-up with you personally. You may also contact her directly via her or phone number shown on the screen.
I am now going to hand the presentation over to Erin Nathan.
CLE Notice: This webinar is an accredited program under the regulations of the Iowa Supreme Court Commission on Continuing Legal Education. This program will provide a maximum of 1 hour of regular credit toward the mandatory continuing legal education requirements established by Rules 41.3 and [Activity # ]

3. The New White Collar Exemption Rules: How to Prepare

4. Basics of the FLSA Who is Covered Under the FLSA?
Is the Employee Exempt or Non-Exempt
What is Compensable Time For Non-Exempt Workers?*
We are only examining one common question – cell phone and time for non-exempt workers

5. Who is Covered Under the FLSA?
FLSA has very broad coverage. An employer does NOT need to employee a threshold number of employees to be covered.
Covered Employer:
Engaged in interstate commerce and have annual gross income of $500,000; or
Public Agencies; or
Operate a hospital, health care facility or school.
Covered Employee:
Engaged in interstate commerce; or
Produce good for commerce; or
Work in activities closely related to such work.
E.g. traveling to other states, using mail, , or telephones for interstate communications, and shipping or receiving goods to or from other states.

6. Who is Covered Under the FLSA?
Non-Covered Workers:
Independent Contractors
Trainees: with very limited application
Interns
Volunteers: ONLY for public-sector, non-profit
Trainees:
Training is similar to that which would be given at a vocation school
Training is for the benefit of the trainees
Trainees work under close observation and do not displace regular employees
Employer providing the training derives no immediate advantage from the activities of the trainees and its operations may actually be impeded
Trainees are not necessarily entitled to a job at the completion of the training

7. White Collar Exemptions
Exempt Employees from Overtime When:
Employee is Paid On A Salary Basis
Meets One of the Duties Tests
Application: The exemption is applied on an employee by employee basis, not to a particular classification. Meaning, you may have two employees doing the exact same work but one employee will be salary and the other hourly.
Executive, Administrative, Professional, Outside Sales, Computer
Executive Exemption To qualify for the executive employee exemption, all of the following tests must be met: • The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week; • 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.
Administrative Exemptions To qualify for the administrative employee exemption, all of the following tests must be met: • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week; • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Professional Exemption To qualify for the learned professional employee exemption, all of the following tests must be met: • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week; • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; • 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. To qualify for the creative professional employee exemption, all of the following tests must be met: • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week; • The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Computer Employee Exemption To qualify for the computer employee exemption, the following tests must be met: • The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour; • The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below; • The employee’s primary duty must consist of: 1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 2) The 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; 3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or 4) A combination of the aforementioned duties, the performance of which requires the same level of skills.
Outside Sales Exemption To qualify for the outside sales employee exemption, all of the following tests must be met: • 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.
Highly Compensated Employees Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

8. New White Collar Rule Released
On May 17, 2016, the DOL released the FINAL rule on white collar exemptions.
The New Rule Goes into Effect on December 1, 2016.
The DOL has updated the salary level requirements seven times since the FLSA’s inaction in 1938 and the regulations inaction in The most recent update was in 2004.

9. Major Changes and Key Provisions
Raises the Salary Level to $913/week or $47,476/year
Raises the compensation requirement for highly compensated employees to $134,004/year
Establishes a mechanism for automatically updating the salary and compensation level every three years
Allows up to 10 percent of the new salary level to be a non-discretionary bonus

10. Key Provisions of the New Rule
Raise the Salary Level
Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Region
$913/week or $47,476/annually
The Final Rule sets the standard salary level at the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week, equivalent to $47,476 per year for a full-year worker).
Whether a worker is full-time or part-time, the standard salary level to qualify for exemption must be met
Determined on a weekly basis
Only public agencies can use comp time

11. Key Provisions of the New Rule
Raise the Salary Level
CURRENT: $455/week or $23,650/annually
NEW: $913/week or $47,476 annually
Based on Bureau of Labor Statistics data
This is a doubling of the salary level

12. $134,004/annually Key Provisions of the New Rule
Increase the Highly Compensated Employee Salary Level
Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers
$134,004/annually

13. Key Provisions of the New Rule
Increase the Highly Compensated Employee Level
CURRENT: $100,000/annually
NEW: $134,004/annually

14. Key Provisions of the New Rule Automatic Updates of Salary Levels
3) Every three years beginning January 1, 2020, the standard salary and annual compensation levels will be automatically updated.
At least 150 days before the effective date, the Secretary will publish a notice in the Federal Register of the updated salary and total annual compensation amounts that will be required.
Base on a fixed percentile of wages

15. Automatic Updates
Standard salary level – updated to equal the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.
Highly compensated employees – updated to equal the 90th percentile of annualized earnings of full-time salaried workers nationally.

16. Key Provisions of the New Rule
Non-Discretionary Bonus Allowed as part of Salary Level
4) Allow Up To 10 percent of Salary to Be a Non-Discretionary Bonus or Commission
- Bonus or Commission Payment must be paid at least quarterly

17. Non-Discretionary Bonus Payment
What is a non-discretionary bonus?
Non-discretionary bonuses and incentive payments (including commissions) are forms of compensation promised in advance to employees (e.g. bonuses for meeting set production goals retention bonuses and commission payments based on a fixed formula).
May be used to satisfy up to 10% of the standard salary level.
Minimum of 90% (approx. $822) of standard salary level must be paid as a weekly salary.

18. Bonus Payment
If an employee does not earn enough from the non-discretionary bonus, commission or incentive payment in a given quarter to meet the standard salary level – an employer may make a “catch-up “ payment within one pay period of the end of the quarter.
Any such “catch-up” payment will count only toward the prior quarter’s salary amount and not toward the salary amount in the quarter in which it is paid.

19. Bonus Payment Qtr 1: Jan thru Mar - $822/week + $2000 bonus
Example Year 2017
Qtr 1: Jan thru Mar - $822/week + $2000 bonus
Qtr 2: Apr thru Jun - $822/week + $600 bonus
Qtr 3: Jul thru Sep - $822/week + $2000 bonus
Qtr 4: Oct thru Dec - $822/week + $500 bonus
(+683 catch-up payment -1st pay period in January)

20. Highly Compensated Employees (HCE) and Bonus Payments
HCEs must continue to receive at least the full standard salary level amount each pay period on a salary or fee basis without regard to the payment of non-discretionary bonuses and incentive payments.
Non-discretionary bonuses and incentive payments (including commissions) may be counted towards the highly compensated employees’ total annual compensation requirement.
The HCE test does not allow employers to credit non-discretionary bonuses or incentive payments (including commissions) toward the standard salary level weekly requirement.
How does this work?
When the Final Rule takes effect on Dec. 1, 2016, employees who only satisfy the HCE duties test may qualify for exemption if they earn at least $134,004 per year and at least $913 per week. HCE employees must receive 100% of the $913 weekly threshold on a salary or fee basis, but non-discretionary bonuses and incentive payments (including commissions) may be used to satisfy the remainder of the $134,004 total annual compensation requirement.

21. Some Additional Background
Policy Objectives of Overtime Exemptions As Set Forth by the DOL
Spread employment by incentivizing employers to hire more employees
Reduce overwork and its effect on health and well-being
Last Update to the Salary Level was 2004
Concern about the common misconception that payment of a salary automatically disqualifies an employee from overtime, irrespective of the duties performed
This 2004 Update Also Eliminated the “long” and “short” tests
Between 1938 and 1975, the DOL increase the salary level every five to 9 years, however, 29 years passed between the 1975 rulemaking and the 2004 rule that last raised the salary level

22. Impact on Employees
The Current Salary Level ($455/week or $23,660/annually) is below the 2014 poverty threshold for a family of four ($24,008)
Likely will lessen flexibility in the workplace for those shifting to non-exempt status

23. Impact on Employers
DOL estimates that over 4 million workers will now be newly eligible for overtime protections
COSTS to Employers: (1) Regulatory Familiarization Costs; (2) Adjustment Costs; and (3) Managerial Costs.
DOL estimates that average annualized direct employer costs will total between $239.6 and $255.3 million per year.

24. Application of Salary Basis Test
Regularly receives a predetermined amount of compensation each pay period (on a weekly or less frequent basis)
The compensation cannot be reduced because of variations in the quality or quantity of the work performed
If employer chooses to use non-discretionary bonuses and incentive payments to meet the standard salary level, the employee must be paid at least 90% of the standard salary level for any week in which the employee performs any work
Need not be paid for any workweek when no work is performed

25. Deductions from Salary
Any employee is not paid on a salary basis if deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the business
If the employee is ready, willing and able to work, deductions may not be made for time when work is not available

26. No Salary Requirements
The salary level and salary basis tests do not apply to:
Outside Sales Employees
Doctors
Lawyers
Teachers
Employees in certain computer-related occupations paid at least $27.63 per hour

27. Executive Exemption
An employee qualifies for the executive exemption if she/he:
Is compensated on a salary basis at a rate of not less than $913 per week, or stated annually, $47,476, for a full year worker, and not subject to reduction based on quality or quantity of work;
Has a primary duty of management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision;

28. Executive Exemption, continued
Customarily and regularly directs the work of two or more other employees; and
Has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.

29. Administrative Exemption
An employee qualifies for the administrative exemption if she/he:
Is compensated on a salary basis at a rate of not less than $913 per week, or stated annually, $47,476, for a full year worker, and not subject to reduction based on quality or quantity of work;
Has a 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; and

30. Administrative Exemption, continued
Has a primary duty which includes the exercise of discretion and independent judgment with respect to matters of significance.

31. Administrative Exemption, continued
What is Discretion and Independent Judgment?
Generally, involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.
The phrase “discretion and independent judgment” must be applied in the light of all the facts involved in the particular employment situation in which the question arises.

32. Administrative Exemption, continued
Factors to Consider to determine whether employee has Discretion and Independent Judgment.
whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
whether the employee carries out major assignments in conducting the operations of the business;
whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business;
whether the employee has authority to commit the employer in matters that have significant financial impact;

33. Administrative Exemption, continued
Factors to Consider to determine whether employee has Discretion and Independent Judgment.
5. whether the employee has authority to waive or deviate from established policies and procedures without prior approval;
6. whether the employee has authority to negotiate and bind the company on significant matters;
whether the employee provides consultation or expert advice to management;
whether the employee is involved in planning long- or short-term business objectives;
whether the employee investigates and resolves matters of significance on behalf of management; and
whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.
The exercise of discretion and independent judgment implies that the employee has authority to make an independent choice, free from immediate direction or supervision. However, employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level. Thus, the term “discretion and independent judgment” does not require that the decisions made by an employee have a finality that goes with unlimited authority and a complete absence of review. The decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action. The fact that an employee’s decision may be subject to review and that upon occasion the decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment. For example, the policies formulated by the credit manager of a large corporation may be subject to review by higher company officials who may approve or disapprove these policies. The management consultant who has made a study of the operations of a business and who has drawn a proposed change in organization may have the plan reviewed or revised by superiors before it is submitted to the client.
(d) An employer’s volume of business may make it necessary to employ a number of employees to perform the same or similar work. The fact that many employees perform identical work or work of the same relative importance does not mean that the work of each such employee does not involve the exercise of discretion and independent judgment with respect to matters of significance.

34. Learned Professional Exemption
An employee qualifies for the learned professional exemption if she/he:
Is compensated on a salary basis at a rate of not less than $913 per week, or stated annually, $47,476, for a full year worker, and not subject to reduction based on quality or quantity of work;
The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;

35. Learned Professional Exemption, Continued
An employee qualifies for the learned professional exemption if she/he:
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.

36. Creative Professional
The employee must be compensated on a salary basis:
Paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed and
The amount of salary paid must be $913/week or $47,476 annually;
Duties Requirement:
The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

37. Computer-Related Occupations
The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
The employee’s primary duty must consist of:
The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

38. Computer- Related Occupations, Continued
The employee’s primary duty must consist of:
The 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;
The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
A combination of the aforementioned duties, the performance of which requires the same level of skills.

39. Outside Sales
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.

40. Commission Employees
If a retail or service employer elects to use the Section 7(i) overtime exemption for commissioned employees, three conditions must be met:
the employee must be employed by a retail or service establishment, and
the employee's regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
3. more than half the employee's total earnings in a representative period must consist of commissions.
Unless all three conditions are met, the Section 7(i) exemption is not applicable, and overtime premium pay must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay. The representative period for determining if enough commissions have been paid may be as short as one month, but must not be greater than one year. The employer must select a representative period in order to determine if this condition has been met. If the employee is paid entirely by commissions, or draws and commissions, or if commissions are always greater than salary or hourly amounts paid, the-greater-than-50%-commissions condition will have been met. If the employee is not paid in this manner, the employer must separately total the employee's commissions and other compensation paid during the representative period. The total commissions paid must exceed the total of other compensation paid for this condition to be met. To determine if an employer has met the "more than one and one-half times the applicable minimum wage" condition, the employer may divide the employee's total earnings attributed to the pay period by the employee's total hours worked during such pay period. If the result is greater than time and one-half the minimum wage, this condition of the exemption has been met.
Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process. (See, however, the discussion of section 13(a)(4) in §§   to ) Such an establishment sells to the general public its food and drink. It sells to such public its clothing and its furniture, its automobiles, its radios and refrigerators, its coal and its lumber, and other goods, and performs incidental services on such goods when necessary. It provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living. Illustrative of such establishments are: Grocery stores, hardware stores, clothing stores, coal dealers, furniture stores, restaurants, hotels, watch repair establishments, barber shops, and other such local establishments.
shall mean an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.

41. Commission Employees, Continued
A “Retail or Service Employer” sell goods or services to the general public, serve the everyday needs of the community, are at the very end of the distribution stream and are not a part of the manufacturing process, and provide the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living.

42. Highly Compensated
Highly compensated employees performing office or non-manual work and paid total annual compensation of $134,004 are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

43. How to Prepare for New Regulations
Identify Exempt Employees
Review Job Descriptions and Functions of Exempt Employees - Do the duties of that job meet one of the white collar duties tests?
Identify Salary Paid to Exempt Employees Who Perform Duties Meeting One of the White Collar Exemptions
Conduct a self-audit before the DOL is at your door. Audits typically focus on
record-keeping, overtime pay, and ensuring that all employees are being paid for hours
worked. Some of the areas to focus on during an employer’s self-audit include:
a. Exempt vs. nonexempt classifications: realistically analyze the
actual duties performed by the employee to determine whether
the employee is properly classified as exempt. Do not rely on
job titles or job descriptions. Consider what the employee
actually does on a daily basis.
i. Part-time employees: part-time employees who would
otherwise be exempt may lose their exempt status if the
employee does not earn at least $913 per week/$47,476
per year. Employers who have reduced employees’
hours or salaries should carefully analyze whether the
employees remain exempt.
ii. Supervisors: before determining that an employee falls
within the executive exemption, ensure that the
employee has actual supervisory duties and
management is his or her primary duty. Look for
organizational charts or job descriptions that have
multiple ‘supervisors’ overseeing the same group of
employees. Employers are seeing increasing litigation
under the executive exemption, especially for retain
managers.
iii. Power to hire or fire: To fall within the executive
exemption, the employee must have actual authority to
hire or fire or have his suggestions given particular
weight. Consider whether the person has even been
involved in the hiring or firing of an employee. If not,
then the employer may want to reevaluate the
employee’s exempt status.
iv. Computer professionals: evaluate whether the employee
performs high-level systems analysis or engages in work
that involves independent judgment on significant
decisions. The technicality of the duties will not alone
make the employee exempt.
Executive assistants: to qualify as exempt, executive
assistants must exercise independent judgment on
significant matters for which they have unsupervised
authority. Do not assume that the assistant is exempt
because his boss is exempt.
vi. Close calls: during a self-audit, employer should be
especially wary of any close cases. The employer has the
burden to prove an exemption applies.
vii. College degrees: possessing a college degree is not
enough to be exempt as a learned professional. The
employee must actually use the knowledge gained from
his advanced, specialized degree. A general four-year
degree is not an advanced degree.
viii. Inside sales employees: inside sales employees are
typically not exempt.
ix. Discretion and independent judgment: Carefully
analyze the significance of the employee’s decisions and
how much independence the employee has.
b. State law: compliance with FLSA does not ensure compliance
with applicable state law. Ensure that employment practices
conform to all applicable state laws.
c. Payroll deductions: carefully asses all payroll deductions,
particularly of salaried employees, to be sure they comport with
the FLSA requirements.
d. Child labor: if any of the employees are minors, verify that the
minors’ positions and hours fall within applicable guidelines.
The Secretary of Labor has repeatedly suggested that child
labor will be an area of focus for the DOL.
e. Working time: Ensure that all working time is compensated.
Implement and enforce strict policies requiring all employees to
document all working time, including time spent on PDA or
electronic messaging devices on anything work-related.
Employers should also verify that no work is occurring during
unpaid meal periods.
Record-keeping: Confirm that the employer’s record-keeping
conforms to the FLSA’s requirements. It may be prudent to
record salaried employees’ working time in the event there is a
dispute over the employees’ exempt status.
g. Overtime: verify that all required compensation is included in
the regular rate for overtime calculation

44. How to Prepare for New Regulations
Identify The Salary Paid to Exempt Employees Who Perform Duties Meeting One of the White Collar Exemptions.
- Is the Employee Paid Less Than $913/week or $47,476/year?

45. How to Prepare: Identify Currently Exempt Making Less than
$913/week or $47,476/year
Monitor Hours for Those Identified Employees
Do the Employees Work More Than 40 hours a week? How often?
Consider examining a range of wages when making your assessments

46. How to Prepare: Assess Financial Impact
Pay the required overtime premium for the current number of overtime hours based on current implicit regular rate of pay
Reduce the regular rate of pay so total weekly earnings and hours do not change after overtime is paid
Eliminate overtime hours
Increase employee salaries to new salary basis requirement
The fluctuating workweek method permits employers to pay non-exempt employees a fixed salary, even if the employee’s hours fluctuate from week-to-week. 29 C.F.R. §  This method also permits employers to pay fluctuating workweek employees overtime at an additional one-half the regular rate of pay, instead of by dividing the salary by 40 and then multiplying that number by 1.5 for all overtime hours worked. To take advantage of this method, an employer need only: (1) tell the employer that the “fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number”; and (2) pay a salary large enough to ensure that fluctuating workweek employees earn more than the minimum wage. Id.

47. How to Prepare: Assess Financial Impact, Continued
Pay Salary Non-Exempt (pay a regular salary, plus overtime if earned)
Hire an additional employee to cover overtime
Consider implementing fluctuating workweek
Some combination of above
§  Fixed salary for fluctuating hours.(a) An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.
(b) The application of the principles above stated may be illustrated by the case of an employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
(c) The “fluctuating workweek” method of overtime payment may not be used unless the salary is sufficiently large to assure that no workweek will be worked in which the employee's average hourly earnings from the salary fall below the minimum hourly wage rate applicable under the Act, and unless the employee clearly understands that the salary covers whatever hours the job may demand in a particular workweek and the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked. Typically, such salaries are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate straight-time compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where all the legal prerequisites for use of the “fluctuating workweek” method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for nonovertime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.
Example: An employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek.

48. How To Keep Wage Rates Stable
Basic Summary (your Company may have additional factors to consider)
Employees that regularly work 40 hours/week (or less):
Regular Rate = Weekly Salary ÷ Hours Worked
2. Employees that regularly work more than 40 hours a week:
Regular Rate = Weekly Salary ÷ (40 + (OT hours x 1.5))

49. How To Keep Wage Rates Stable
Basic Summary (your Company may have additional factors to consider)
Example: A currently exempt employee that makes $600/week or $31,200/year
Employee Currently is Exempt and Works 40 hours/week or less:
Regular Rate = $600 ÷ 40 = $15.00 / hour
Overtime Rate = $22.50 /hour
Employee Currently is Exempt and Regularly Works 50 hours a week:
Regular Rate = $600 ÷ ( x 1.5) = $10.91/ hour
Overtime Rate = $16.37 /hour
Johnson County $9.15 as of May 1, 2016, and $10.10 as of January 1, 2017.
Linn County supervisors voted to raise the $7.25minimum wage by a dollar each Jan. 1 until 2019, when it will reach $10.25.

50. Issues with Keeping Wage Rates Stable
DOL and media publication of new rule and implication that wages rates will automatically raise
Employees will be paid the same, but will loose the flexibility of being a salary employee
How accurate are your current time records and estimates?
What if different employees are more/less productive?

51. Issues with Keeping Wage Rates Stable
Our example – how do you message to your employees the below?
Employee Currently is Exempt and Works 40 hours/week or less: $31,200 (for 40 hours)
Employee Currently is Exempt and Regularly Works 50 hours a week: $22, (for 40 hours)
Can you guarantee overtime?

52. Moving to Fluctuating Workweek:
Hours of work fluctuate from week to week
Amount of Salary is enough to provide at least minimum wage
If employee receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay
Requires a written agreement with the employee
§  Fixed salary for fluctuating hours.(a) An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.
(b) The application of the principles above stated may be illustrated by the case of an employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
(c) The “fluctuating workweek” method of overtime payment may not be used unless the salary is sufficiently large to assure that no workweek will be worked in which the employee's average hourly earnings from the salary fall below the minimum hourly wage rate applicable under the Act, and unless the employee clearly understands that the salary covers whatever hours the job may demand in a particular workweek and the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked. Typically, such salaries are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate straight-time compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where all the legal prerequisites for use of the “fluctuating workweek” method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for nonovertime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.

53. Moving to Fluctuating Workweek:
hours of work fluctuate from week to week
Example: An employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek.
* Requires a written agreement with the employee
§  Fixed salary for fluctuating hours.(a) An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.
(b) The application of the principles above stated may be illustrated by the case of an employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
(c) The “fluctuating workweek” method of overtime payment may not be used unless the salary is sufficiently large to assure that no workweek will be worked in which the employee's average hourly earnings from the salary fall below the minimum hourly wage rate applicable under the Act, and unless the employee clearly understands that the salary covers whatever hours the job may demand in a particular workweek and the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked. Typically, such salaries are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate straight-time compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where all the legal prerequisites for use of the “fluctuating workweek” method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for nonovertime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.

54. Moving to Fluctuating Workweek
Paid $600/week
Week 1: 40 hours  pay $600 (Regular Rate = $15)
Week 2: 37.5 hours  pay $600 (Regular Rate = $16)
Week 3: 50 hours  pay $660 (Regular Rate = $12) ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00)
Week 4: 48 hours  pay $650 (Regular Rate = $12.50) ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75)
§  Fixed salary for fluctuating hours.(a) An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.
(b) The application of the principles above stated may be illustrated by the case of an employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
(c) The “fluctuating workweek” method of overtime payment may not be used unless the salary is sufficiently large to assure that no workweek will be worked in which the employee's average hourly earnings from the salary fall below the minimum hourly wage rate applicable under the Act, and unless the employee clearly understands that the salary covers whatever hours the job may demand in a particular workweek and the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked. Typically, such salaries are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate straight-time compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where all the legal prerequisites for use of the “fluctuating workweek” method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for nonovertime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.

55. How to Prepare: Implementing Changes
After you’ve set forward a plan, how will you roll out your plan?
Impact of losing the flexibility/ status of exempt
Impact of tracking hours
Training on tracking hours and training of supervisors who previously only supervised exempt workers
Assess budgeting impact of regular increases in salary basis level
Whatever you do, don’t change your employees to independent contractors

56. Tips and Strategies for Avoiding Risk
Audit the exempt classifications of the workforce periodically.
Employers can always do more than the law requires.
Employers should use job descriptions and performance evaluations to their advantage
Evaluate job titles.
Audit payroll practices periodically to ensure that time is tracked and paid correctly.

57. Tips and Strategies for Avoiding Risk
Implement a safe harbor policy.
Ensure that record-keeping policies are in place.
Train management-level and supervisory employees regarding compensable off-the-clock activities.
When terminating an employee, make sure the employee is paid properly for all time worked.

58. Implementation Deadline
December 1, 2016

59. BUT REALLY??
In June, Senator Lamar Alexander (R-TN) and 43 other Senate Republicans filed a “motion of disapproval” under the Congressional Review Act (CRA), which allows lawmakers to vote to roll back controversial regulations.
On July 14, 2016, in an attempt to soften the impact of the new regulations, Congressman Kurt Schrader (D-OR) introduced a bill – the Overtime Reform and Enhancement Act (OREA) – to add to the regulations a phase-in provision, which would phase in the increase in the salary threshold in steps over the next three years and remove a current provision that increases the threshold salary automatically every three years.

60. BUT REALLY??
On September 20, with less than 80 days left before the effective date for the revisions to the new regulations, two federal court lawsuits were filed in Texas to put off or halt the implementation of the revisions.
On September 28, 2016, the U.S. House of Representatives passed H.R Regulatory Relief for Small Businesses, Schools, and Nonprofits Act. The bill, which the House passed by a vote of 246 to 177, would delay the December 1, 2016 effective date of the new salary level test in the final overtime rule for six months – until June 1, 2017.
On September 29, 2016, Senator Lamar Alexander, along with four other senators, introduced another bill, S. 3464, the Overtime Reform and Review Act.

61. YES, REALLY – December 1, 2016
Because of the number of steps that must be taken prior to any change in the December 1 effective dated, that date is unlikely to change. In addition, while not mandated by the new regulation, employers should consider implementing changes during the first day of the payroll week that includes December 1, because the regulation does require the changes to be fully in place by that date.

62. Paying for Time Worked: Cell Phones and Emails
“Suffer or Permit to Work”  Must Pay for Time
(1) DOL is taking this issue seriously and has developed apps for employees to “independently track their time”
What about checking s?
DOL has put out a request for information on the issue of time spent checking s or using mobile devices
BEST OPTION: Adopt and enforce a policy barring non-exempt employees from checking s or other electronic devices during off-hours and require all non-exempt employees to record time worked on electronic devices during off-hours, refrain from encouraging non-exempt workers to be available via during off-hours
Is the time de minimus? -- might have a defense

63. Questions

64. Erin R. Nathan (319) 896-4013 enathan@simmonsperrine.com
CLE Notice: This webinar is an accredited program under the regulations of the Iowa Supreme Court Commission on Continuing Legal Education. This program will provide a maximum of 1 hour of regular credit toward the mandatory continuing legal education requirements established by Rules 41.3 and [Activity # ]

65. Disclaimer: This presentation is designed and intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired.