Proposed 'White Collar' Exemption Regulation Presented by Jennifer Cordes, MSA, CPP Director of Tax Administration

Movie Trivia When was Jaws released? – Summer of 1975 with over 67 million tickets sold making it the first summer “blockbuster” – 1 st movie to reach the $100 million mark in “theatrical rentals” which is about 45% of the “box office gross” How many sharks were built to use in the movie? – 3: 1 open on left side, 1 open on right side, and 1 fully-skinned (each costing approximately $250,000)

Agenda Fair Labor Standards Act of 1938 Proposal Issues with Current Legislation “White Collar” Exemption Not Qualified Under “White Collar” Exemption Collective Bargaining Agreements Highly Compensated Employees Impact to Employers Impact to Employees Summation Q&A

Fair Labor Standards Act of hour Work Week Established Minimum Wage Regulations of Minor Employment Mandate Overtime Pay in Certain Jobs – §213(a)(1) states exemption from both minimum wage and overtime for employees employed as bona fide executive, administrative, professional, and outside sales employees. – §213(a)(1) and 13(a)(17) also exempt certain computer employees.

Proposal March 13, 2014 President Obama signed a Presidential Memorandum directing the DOL to update regulations on “white collar” exemption.

Issues with Current Legislation Exemption regulation outdated – Last update August 23, 2004 Economic security for middle-class Current tests confusing Current salary test non-effective

Current vs. Proposed “White Collar” Exemption *Proposed salary minimums based on DOL 2013 data – current data 40 th percentile wage in the final rule would likely be $970 per week ($50,440 annually)

“White Collar” Exemption Tests 1.“Salary Basis Test” – the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; 2.“Salary Level Test” – the amount of salary paid must meet a minimum specified amount; 3.“Duties Test” – the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

“White Collar” Exemption – Executive

“White Collar” Exemption – Administrative

“White Collar” Exemption – Professional

“White Collar” Exemption – Computer Employee

“White Collar” Exemption – Outside Sales

Blue Collar Workers Exemption does not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill, and energy; A high hourly rate does not qualify a “blue collar” worker as exempt under FLSA; Examples are non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers, and laborers.

Police, Fire Fighters, Paramedics, & Other First Responders Exemption does not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, EMTs, ambulance personnel, rescue workers, hazardous materials workers and similar employees regardless of rank or pay level.

Collective Bargaining Agreements Employers may, on their own initiative or under a collective bargaining agreement, provide a higher wage, shorter workweek, or higher overtime premium than provided under the FLSA; They cannot waive or reduce FLSA protections; Employers must comply with any Federal, State, or municipal laws, regulations, or ordinances establishing a higher minimum wage or lower maximum workweek than established under the FLSA.

Electronic Devices DOL anticipates a Request for Information (RFI) in August 2015 Employers should expect ruling to cover: – What the DOL considers to be compensable time when employees engage in activity using portable devices; – How the DOL defines de minimus time in the context of the performance of work that does not need to be compensated; – Guidance on record-keeping obligations as traditional time and attendance practices may not work well for after-hours, off-site activities; – Should employers mandate “ curfews” in an attempt to define how often and under what circumstances employers may require after-hours, off-site work.

Current vs. Proposed Highly Compensated Employees *Proposed salary minimums based on DOL 2013 data – current data 90 th percentile wage in the final rule would likely be $128,000 annually

Impact to Employers Rise in administration costs due to updates needed in: – Job descriptions (switching salary to hourly); – Establishing hourly rates; – Time and Attendance systems; – Employee handbook; – Benefits policy to reduce benefits to compensate. Reduce incentive and bonus compensation to offset increase in wage payouts to newly guaranteed overtime employees; Possible loss of employees either voluntarily or involuntarily to offset; – Or hiring of new employees to limit existing employees hours and keep overtime down; May affect employee morale

Estimated Costs & Benefits DOL estimates the average annualized direct employer costs will total between $239.6 and $255.3 million per year dependent on the updating methodology DOL estimates average annualized transfers of higher earnings from employer to employee to be between $1.18 and $1.27 billion The two (2) proposed methods to update annually are (1) fixed percentile method based on inflation and (2) Consumer Price Index for all Urban Consumers (CPI-U).

Impact to Employees Extend overtime protections to nearly 5 million workers within the first year of implementation – 56% women and 53% have at least a college degree Estimated 4.68 million white collar workers currently exempt would become entitled to overtime protection within the first year – Reference DOLs state-by-state breakdown given in resources Provide clarity for millions of workers in determination of overtime eligibility Provide protection of overtime eligibility with automatic annual salary threshold limits based on inflation or wage growth over time Promote higher take-home pay and allow better balance between work and family obligations

Questions?

Resources & Attachments The Fair Labor Standards Act of 1938, As Amended. (2011). WH Publication 1318, (Revised May 2011). Retrieved November 9, 2015, from O'Toole, Esq., M. (2015). Section 2: Federal and State Wage-Hour Laws. In The Payroll Source (2015 ed.). Washington, DC: American Payroll Association. Preparing for Year-End and (2015, October 28). Lecture presented at Preparing for Year-End and 2016 Seminar in APA Main Office, San Antonio. FREQUENTLY ASKED QUESTIONS: Overtime NPRM. (n.d.). Retrieved November 9, 2015, from Fact Sheet - Wage and Hour Division (WHD) - U.S. Department of Labor. (2008, July 1). Retrieved November 9, 2015 Schmidt, M. (2015, July 23). Is A DOL Rule For Portable Device Work Coming? - Law360. Retrieved November 9, 2015, from STATE-BY-STATE BREAKDOWNS OFWORKERS AFFECTED BY DEPARTMENT OF LABOR’S PROPOSED OVERTIME REGULATION. (2014, March 13). Retrieved November 9, 2015, from

Contact Information Jennifer Cordes, MSA, CPP Director of Tax Administration Heritage Blvd, Suite 110 San Antonio, Texas Office: (210) Fax: (210)