1. Understanding the DOL’s New Overtime Rules
July 2016
Presented by Neckerman Insurance Services

2. Introduction

3. Agenda FLSA Overview New Overtime Rule Impact of New Overtime Rule
Compliance Examples
Developing an Implementation Plan

4. FLSA Overview

5. Does the FLSA apply? Step 1: Does an employment relationship exist?
Step 2: Is the employer or employee covered by the FLSA?
Step 3: Does a joint employment relationship exist?

6. Covered even if employer is not a covered enterprise
FLSA Applicability
FLSA coverage is very broad; many employers and most employees are subject to the FLSA.
Enterprise
Employees
Has at least two employees and is engaged in commerce with at least $500,000 in gross annual business
Hospitals, residential care facilities and schools
Public agencies
Involved in interstate commerce (including the production of goods for commerce)
Some domestic service workers (housekeepers, full-time babysitters, cooks)
Covered even if employer is not a covered enterprise

7. Overtime Compensation
One and a half times the regular wage rate for any hours worked over 40 during a workweek
Regular wage rate
Average hourly compensation during a workweek
Divide employee compensation by the numbers of hours worked during the workweek
Hours of work
“Suffers or permits” employee to work
Includes on-duty and “engaged to wait” time
Workweek
7 consecutive 24-hour periods (168 hours)

8. White Collar Exemptions
Executive, administrative and professional employees
Outside sales employees
Employees in certain computer-related occupations
Highly compensated employees
Salary Basis Test
Predetermined and fixed wages
Not subject to reduction due to quality or quantity of work
Salary Level Test
Minimum salary threshold to qualify for exemption
Duties Test
Based on the employee’s actual job duties
Must match the duties defined by law

9. Duties Test Executive Manages the enterprise
Directs the work of two or more employees
Has authority to hire or fire
Administrative
Does office or non-manual work
Directly related to management or general business operations
Exercises discretion and independent judgment in matters of significance
Professional
Learned professional-advanced knowledge in field of science or learning
Creative professional-invention, imagination, originality or talent in recognized field of artistic or creative endeavor
Computer
System analyst, programmer, computer engineer and similarly skilled employees
Does not apply to the manufacture or repair of computer hardware or heavy use of computers
Outside Sales
Salary requirements do not apply
Makes sales or obtains orders or contracts for services
Customarily and regularly engaged away from the employer’s premises or place of business
Highly Compensated
Must perform office or non-manual work
Must customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee

10. New Final Rule on White Collar Exemptions

11. White Collar Exemption Final Rule – Effective Dec. 1, 2016
3 Major Changes
Salary Level Increase
Increase in the HCE Compensation Level to $134,004 annually
10 Percent Bonus/Commission Allowance
Allows non-discretionary bonuses and incentive payments to be used to satisfy up to 10 percent of the new Standard Salary Level requirements
Automatic Future Salary Level Increases
Provides for additional, automatic increases in the Salary Level requirements
Effective every three years
Increase in the Standard Salary Level to $913 per week ($47,476 annually for a full-year worker)

12. Final Rule – New Salary Levels
Current
$455 per week ($23,660 for a full-year worker)
Effective Dec. 1, 2016
$913 per week ($47,476 for a full-year worker)
Standard Salary Level

13. Final Rule – Bonuses/Incentive Payments
Up to 10 percent
Non-discretionary bonuses and incentive payments (including commissions) may satisfy up to 10 percent of the Standard Salary Level.
“Catch-up” payment
Employers may make one catch-up payment at the end of each quarter to satisfy the Standard Salary Level.
Payment must be made within one pay period after the end of the quarter.
Standard Salary Level Exemptions only
For HCE exemptions, the entire Standard Salary amount must be paid on a salary basis.

14. Final Rule – Bonuses/Incentive Payments
Remaining amount ($91.30 per week) may be paid in nondiscretionary bonuses and incentive payments (including commissions), as long as the payment is made:
At least quarterly; and
Within one pay period after the end of the quarter.
Exempt employee must receive at least $ per week in salary (90 percent of the $913 Standard Salary Level)
10 percent

15. Final Rule – Bonuses/Incentive Payments
Quarterly Assessment
Standard Salary Level: Quarterly Minimum
13 weeks x
$913 weekly salary =
$11,869.00
10 percent / “Catch-up” Payment Option
13 weeks x
$ weekly salary =
$10,682.10
Difference (Must be paid within one pay period of the end of the quarter)
$1,186.90
Maximum Amount Allowable per Quarter in Bonuses/Incentive Payments to satisfy the Standard Salary Level in effect from Dec. 1, 2016 to Dec. 31, 2019

16. Final Rule – Bonuses/Incentive Payments
Quarterly Assessment
If paid salary plus nondiscretionary bonuses and incentive payments (including commissions) does not equal the Standard Salary Level for 13 weeks, employer has one pay period to make up for the shortfall (up to 10 percent of the Standard Salary Level).
Catch-up Payment
Amount only counts toward prior quarter’s salary amount, not toward the salary amount in the quarter in which it was paid.
Effect of No Catch-up Payment
Employee is entitled to overtime pay for any overtime hours worked during the quarter.

17. Example – “Catch-up” Payment
Calculate Total Amount Paid During the Quarter
January
February
March
Total
13 weeks x $ salary
$11,182.10
$300
Bonus paid
$100
Commission paid
Step 1: Quarterly Assessment
Subtract Total Amount Paid During the Quarter from the Standard Salary Level Quarterly Minimum
Standard Salary Level Quarterly Minimum
$11,869.00
Total Paid During Quarter
-$11,182.10
Difference
$686.90
Step 2:
Determine Shortfall Amount
Option 1
Pay the employee the difference ($ in the example) within one pay period of the end of the quarter
Option 2
Pay the employee overtime for all hours he or she worked above 40 in each of the 13 workweeks
Step 3:
Make Catch-up Payment or Pay Overtime OR

18. Final Rule – New HCE Compensation Level
Standard Salary
$47,476
Additional compensation
(at least $86,528)
HCE Compensation Level
$134,004
Entire amount must be paid on a salary basis
Bonuses/incentive payments do not count
No “catch-up” payment allowed
Annual minimum employers must pay to an exempt white collar employee subject to Minimal Job Duties Test
May include bonuses and incentive payments (including commission)

19. Final Rule – New Salary Levels
HCE Compensation Level
Current
$100,000 per year
Effective Dec. 1, 2016
$134,004 per year

20. Final Rule – New Salary Levels
New levels are set as fixed percentiles of the weekly earnings (as established by the Bureau of Labor Statistics) of full-time, salaried workers:
New HCE Level
90th percentile (annual equivalent) nationally
New Standard Level
40th percentile of lowest-wage Census region (currently the South)

21. Final Rule – Automatic Salary Level Updates
Every 3 years
Automatic updates will occur every three years, effective on the first of the year.
Jan. 1, 2020
The first automatic update will become effective on Jan. 1, 2020.
150 days before new effective dates
DOL will publish updated levels at least 150 days before their effective dates.
Federal Register
Wage and Hour Division website

22. Final Rule – Automatic Salary Level Updates
Salary levels will automatically update to the same fixed percentiles of the weekly earnings (as established by the Bureau of Labor Statistics) of full-time, salaried workers:
HCE Level
90th percentile (annual equivalent) nationally
Standard Level
40th percentile of lowest-wage Census region
(PROJECTED ESTIMATE)

23. Impact on Employers

24. Maintain exempt status Reclassify as nonexempt
Compliance Options
Exempt employees earning less than $913 per week
DEC. 1, 2016
Option 1
Option 2
Maintain exempt status
Reclassify as nonexempt
Increase salary to at least $913 per week
Keep salary and pay overtime at current salary rate
Reduce salary so that new wage and overtime hours equal current salary
Limit hours of work (no overtime allowed)
Redistribute hours of work to other employees
Hire additional employees

25. Employee Reclassification
Option 2
Reclassify as nonexempt
Employee loses exempt status; and
Employee must receive overtime pay for any hours worked over 40 during a workweek
Expected Overtime No
Yes
Limit hours of work
No pay change needed
No additional cost
How often?
How many hours?

26. Expected Overtime Options
Reclassify as nonexempt
Expected Overtime
Manage Hours of Work
Limit authorized overtime
Redistribute hours of work (among existing employees or new hires)
Manage Wages/Salary
Fluctuating work arrangements
Reduce compensation so that regular wages and overtime equal current salary level

27. Additional Decision Considerations
Consider ALL potential costs and issues, not just cost of salary changes
Timekeeping
Management
Employee Morale
Immediate salary costs

28. Compliance Options: Examples

29. Examples: Regular Overtime
Amy: Creative professional employee
$39,000 per year / $750 per week
Works an average of 46 hours per week (312 overtime hours per year)

30. Example: Regular Overtime
Option 1
Option 2
Maintain exempt status
Reclassify as nonexempt
Increase salary to at least $47,476
Pay overtime
(Keep current pay after Dec. 1, 2016)
Reduce pay $15.31 per hour ($ per week)
Estimated cost: $8,476
Estimated cost: $8,776.56
Estimated cost: $9.88

31. Examples: Occasional Overtime
Brad: Exempt administrator
$39,000 per year / $750 per week
Expected 36 overtime hours per year
Occasional overtime

32. Example: Occasional Overtime
Option 1
Option 2
Maintain exempt status
Reclassify as nonexempt
Increase salary to at least $47,476
Pay overtime
(Keep current pay level after Dec. 1, 2016)
Reduce pay
$18.28 per hour
($ per week)
Estimated cost: $8,476
Estimated cost: $1,012.68
Estimated cost: $9.52

33. Examples: Cost Comparison
Amy
REGULAR overtime
Brad
OCCASSIONAL overtime
Maintain exempt status
Estimated cost: $8,476
Estimated cost: $8,476
Pay overtime
Estimated cost: $8,776.56
Estimated cost: $1,012.68
Reduce pay
Estimated cost: $9.88
Estimated cost: $9.52

34. Additional Considerations
Maintaining exempt status
Budgeting for future salary level updates
Paying overtime
Cost of additional, unexpected overtime hours
Shifting hours
Sharing the work
Employee skills
Timekeeping and management costs
Reducing pay
Employee morale

35. Implementation Plan

36. Implementation Planning
Involve Key Personnel
Include C-suite, Legal, HR, IT, Payroll and Finance early on
Create collaborative teams
Consider Costs and Issues
Analyzing salaries and duties
Cost of increasing salary vs. reclassification (what to pay, how to pay it?)
Employee morale
Manager buy-in

37. Develop a Timeline for Compliance (Sample)
July – Aug. 2016
Analyze data to identify affected employees.
Review job classifications and duties to ensure exempt employees meet duties tests.
Consult key personnel (HR, IT, Legal, etc.) to identify specific challenges and issues to consider.
Calculate and compare costs of compliance options.
Aug. – Sep. 2016
Determine compliance strategy (pay adjustments, job reclassifications, etc.).
Develop any new systems needed (timekeeping, management strategy, etc.).
Train managers and other key personnel on compliance strategy.
Oct. – Nov. 2016
Communicate changes to affected employees.
Implement wage/salary adjustments.
Implement job reclassifications.
Hire and train any additional employees needed for compliance.

38. Develop a Timeline for Compliance
Dec. 1, 2016
(Thursday)
Full Compliance
Consider implementing full compliance as of the beginning of the pay period that includes Dec. 1, 2016.

39. Employer Compliance - Automatic Updates
Automatic Salary Level Updates
The final rule does not require automatic pay raises when the standard salary level increases.
However, employers should plan ahead to maintain any white collar exemptions
Mark Calendar for Aug. 5, 2019
(at least 150 days in advance)
Check Federal Register and Wage and Hour Division website for updated salary levels
Plan ahead for salary changes, job reclassifications, etc.

40. FLSA Training Employees
Employment policies (overtime work, off-the-clock work, meals, breaks, travel time, mobile devices, pre/post-shift activities, on-call work)
Timekeeping practices
Managers and Supervisors
Employee classification
Timekeeping issues
Enforcing overtime policies
Handling FLSA risks

41. Effective Employee Communications
Have a communication plan
Present to managers and supervisors
Designate spokesperson

42. Ripple Effects Potential Lawsuits Unpaid overtime
Improper classification
Retaliation claims
Compliance
NLRB—Protected concerted activity
Cost of additional employee benefits
Joint liability
Timekeeping
Meal breaks and rest periods
Working off the clock
Remote work (mobile devices)
Employee morale
Salary/work hour reductions
Perceived demotion
Pay equity

43. Questions?

44. Thank you!
This presentation is current as of the date presented and is for informational purposes only. It is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Please contact legal counsel for legal advice on specific situations. This presentation may not be duplicated or redistributed without permission. © 2016 Zywave, Inc. All rights reserved.