1. FLSA Overtime Proposed Regulations: What You Need to Know Now to Be Prepared
Presented by:
Melissa Sharp Murdock, Esq.,
Senior Manager, External Affairs

2. WorldatWork
WorldatWork is a nonprofit human resources association and the compensation authority for professionals and organizations focused on compensation, benefits and total rewards. It's our mission to empower professionals to become masters in their fields. We do so by providing thought leadership in total rewards disciplines from the world's most respected experts; ensuring access to timely, relevant content; and fostering an active community of total rewards practitioners and leaders.

3. Public Policy at Worldatwork
WorldatWork is the non-partisan authority on topics related to total rewards. Through legislative and regulatory analysis, strategic lobbying and advocacy, and targeted outreach and communications, the Public Policy Team represents WorldatWork members before lawmakers, policy institutions and federal agencies.
WorldatWork provides official comments, information, data and resources on total rewards to public policy makers in order to help educate, inform, influence and ultimately improve public policy impacting total rewards.

4. Agenda Background Proposed Overtime Rule What Happens Next?
Salary Test
Duties Test
What Happens Next?
Comment Period and Timing
WorldatWork’s Concerns
What Can TR Professionals Do to Prepare?
Q&A

5. Background
March 2014: President Obama directed the Department of Labor (DOL) to update the Fair Labor Standards Act (FLSA) overtime protections
Goals:
Raise middle-class wages
Increase the number of nonexempt workers
Provide bargaining power to low-wage workers who do not have certain protections
Simplify the identification of overtime-eligible employees

6. Background DOL Proposed Rulemaking Process Listening sessions
Met with industry leaders and labor advocates
WorldatWork met with DOL in April 2015
WorldatWork’s concerns:
Raising the salary level test too high will have unintended consequences. Companies may lower base wages to offset the regulations.
May make more employees eligible for overtime pay but this doesn’t mean that these employees will earn overtime pay.

7. Proposed Overtime Rule

8. Proposed Overtime Rule
A Hard Day's Work Deserves a Fair Day's Pay
On June 29, in a Huffington post blog, President Obama announced that his administration would publish proposed rules updating overtime regulations
“This week, I'll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That's good for workers who want fair pay, and it's good for business owners who are already paying their employees what they deserve -- since those who are doing right by their employees are undercut by competitors who aren't.”

9. Proposed Overtime Rule
Salary Test
Current Law: $455/week or $23,660 per year
Proposed Rule:
Using 2013 data, $921 per week or $47,892 per year
2016 estimates, $970 per week or $50,440 per year
Proposed rule sets the standard salary level test at the 40th percentile of weekly earnings for full-time salaried workers
Other measure under consideration is CPI-U Consumer Price Index for All Urban Consumers (excludes rural populations and represents approximately 80% of the population)
Department believes that regularly updating the salary level is the best method to ensure the tests continues to provide an effective means of distinguishing who is and overtime- eligible white collar employee
DOL states that setting the salary level at the 40th percentile of wages with a mechanism to automatically update is the simplest way for securing effectiveness of the salary test as the bright line test for exempt-vs non-exempt workers.
A salary test set lower or without a mechanism to update, would require a more rigorous duties test
First poll question

10. Proposed Overtime Rule
Salary Test
Proposed Rule establishes a mechanism for automatically updating the salary and compensation levels to ensure that they will continue to provide and effective test for exemption
40th percentile of weekly earnings for full-time salaried workers; or
Consumer Price Index for All Urban Consumers (CPI-U).

11. Proposed Overtime Rule
Salary Test (cont.)
Bonuses
DOL is soliciting comments on whether or not companies should be allowed to include nondiscretionary bonuses, such as production or performance bonuses to satisfy a portion of the standard salary test requirement.
DOL notes the prevalence and importance of bonuses. Seeking comment on whether or not bonuses and how much of the bonus can be attributed to the salary threshold test.
In the proposed rule they discuss capping bonuses to 10 percent of the salary level if they were to adopt a provision allowing bonuses to be included to meet the salary requirement

12. Proposed Overtime Rule
Salary Test (cont.)
Threshold for highly compensated employees (HCE):
Current HCE salary test is $100,000 annually
DOL is proposing to set the HCE at the annualized value of the 90th percentile of weekly earnings of full- time salaried workers ($122,148 annually)

13. Proposed Overtime Rule
Duties Test
DOL has not set forth specific proposals to modify the current standard duties test.
DOL is seeking comments on the duties test. Specifically they want to know if the duties tests are currently working to screen out employees who are not bona fide white collar exempt employees?
Are there additional occupations that should be excluded from the FLSA salary and duties tests?
White collar exemption still exists for certain executive, administrative & professional employees.
Currently computer professionals, outside sales professionals, doctors, teachers and lawyers

14. Proposed Overtime Rule
FLSA White Collar Exemptions
Exclude certain executive, administrative and professional employees from federal minimum wage and overtime requirements
Certain categories of employees are excluded from these requirements such as computer professionals, outside sales employees, doctors, teachers and lawyers
Proposed rule does not seek to change these categories but does solicit suggestions for additional occupation examples

15. Proposed Overtime Rule
What determines if an employee qualifies for one of the white collar exemptions?
Employee generally must:
1. Be salaried, paid a predetermined and fixed salary that is not subject to variations based on the quality or quantity of work performed;
2. Be paid at least a specific salary threshold which is $455 per week ($23,660 annually) under current rules; and
3. Primarily perform executive, administrative or professional duties.

16. What Happens Next?

17. What Happens Next? Comment Period
NPRM was officially published in the Federal Register on Monday, July 6.
The public had 60 days to submit formal comments on the proposed rule. Comments were due Friday, Sept. 4.
DOL received 290,044 official comments on this proposed rule.
Groups will send in formal letters asking for an extension to the comment period.

18. What Happens Next? Timing
The DOL will review the comments submitted through the formal comment process.
The administration will attempt to finalize the rule and have it take effect in 2016.
Republicans in Congress may attempt to prevent the rule from going into effect.
Obama still has veto power.
Congress will not be able to overturn the rule unless a Republican is elected in 2016.
APA – Administrative Procedures Act –
In 2004 the last time changes were made to OT regulations, DOL gave businesses 120 days to implement the new regs

19. WorldatWork’s Concerns

20. WorldatWork’s Concerns
WorldatWork fielded a Snapshot Survey on Proposed FLSA Changes
48% of orgs said that reclassifying an employee from exempt to non-exempt will likely decrease workplace flexibility options
65% of respondents said the proposed salary level increase is “too high”
Nearly 80% of respondents stated that reclassification to nonexempt status would have a negative effect on its overall workforce, as exemption classification is a perceived measured of status desired by employees.

21. WorldatWork’s Concerns

22. WorldatWork’s Concerns
Potential Consequences
Positive
Reduce chance of employers exploiting workers under ‘guise’ of exemption status
Improve wages for former exempt employees now eligible for overtime
Improve wages for exempt employees whose employers raise pay to meet new salary level
Negative
How will employers manage higher labor costs?
Reduce base pay to offset overtime eligibility
Eliminate jobs to offset additional overtime expense
Employers may reduce or eliminate supervisory positions and associated advancement opportunities
Potential for less workplace flexibility

23. What Should Total Rewards Professionals Do to Prepare?

24. What Should Total Rewards Professionals Do to Prepare?
Recommendations
Review employees currently classified as exempt who will fail the new salary test
Review job documentation and tasks of impacted jobs
Ensure that your senior leadership is notified that potentially significant changes have been proposed
Review bright line employees who fall below $122,148

25. What Should Total Rewards Professionals Do to Prepare?
Perform Analysis
Gather a list of employees who are currently classified as exempt and earn a base pay level below $970/week or $50,440/year.
Include any expected incentive or bonus payments in a separate column.
If anecdotal data exists on the number of hours these employees may be working on a weekly basis in excess of 40/week, include in another column.
Highlight these jobs/employees on organization charts to get a visual idea of which jobs could be affected and where they exist within your organization.

26. Perform Analysis (cont.))
What Should Total Rewards Professionals Do to Prepare?
Perform Analysis (cont.))
Discuss options with leadership and cost model alternatives to address:
Raise pay to meet the new salary level and maintain exemption.
Re-classify affected employees to nonexempt, maintain pay level and pay overtime.
Use estimate of hours worked over 40 to calculate additional cost.
Re-classify to nonexempt, adjust pay down to accommodate additional overtime now due.

27. What Should Total Rewards Professionals Do to Prepare?
Perform Analysis (cont.)
Discuss options with leadership and cost model alternatives to address:
Re-classify to nonexempt, maintain pay level but prohibit overtime.
Use estimate of hours worked over 40 to calculate additional work (hires FT or PT) that need to be hired to absorb work.
Job elimination to absorb additional costs.

28. What Should Total Rewards Professionals Do to Prepare?
Other Implications to Consider
Who will you assign exempt duties of work of (current) nonexempt employees?
Move duties to next level up (manager)?
Maintain duties with the nonexempt employee?
If pay levels are increased to maintain exemption status, what pay compression effect will that have with the next level up?
What career development or succession planning implications will these changes create?
What Should Total Rewards Professionals Do to Prepare?

29. Questions Answers

30. Resources Web Site Links Social Media Blog Regulatory Tracker
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WorldatWork.org/flsaovertime
@WorldatWork_DC
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Regulatory Tracker
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