Fair Labor Standards Act (FLSA) Update 2016 May 16

Contents Brief Refresher on FLSA’s Primary Requirements Current Proposed Changes to FLSA Concerns/Issues Raised by Proposed Changes Suggested Actions Other FLSA/Department of Labor Developments

Brief Overview of FLSA

Enacted in 1938, FLSA is the federal wage and hour law that governs minimum wage, overtime pay, and child labor protections. Coverage is interpreted broadly. Covers employers with greater than $500,000 in annual business or engaged in interstate commerce Covers most public and private sector employees States may enact laws more protective than FLSA

Minimum Wage Current federal minimum wage for non-exempt employees is $7.25/hr. Limited exceptions to minimum wage Certain workers with disabilities (blindness, mental illness, alcoholism, drug addiction) Employees under 20 years old may be paid $4.25/hour in their first 90 days

Minimum Wage Full-time students of colleges and universities can be paid 85% of minimum wage Certificate from DOL required Limited to 8 hours/day and 20 hours/week Only when school is in session

Overtime Must pay non-exempt workers 1.5 times their “regular rate of pay” for all hours worked over 40 in a workweek “White Collar” Exemptions: Executive, Administrative, Professional Paid on a “salary basis” Paid a salary of at least $455/week ($23,660/year) Job duties test Was streamlined in 2004

Overtime Computer Employee Exemption Paid on salary basis or hourly rate min. $27.63 Employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in computer field Duties test Highly Compensated Employee Total annual compensation of at least $100,000 Relaxed duties test Outside Sales Employees

Record Keeping Requirements Basic list for non-exempt employees Full name and SS # Address, including zip code Birthdate, if younger than 19 Sex and occupation Time and day of week when workweek begins Hours worked each day and each workweek Basis on which wages are paid (e.g., “$9/hour” or “$500/week”)

Record Keeping Requirements Regular hourly rate Daily or weekly straight-time earnings Overtime earnings for workweek Additions or deductions from wages Total wages paid each pay period Date of payment and pay period covered Preserve records for at least 3 years

Current Remedies Two-year statute of limitations (three years for willful violations) Enforced by Dept. Labor, Wage and Hour Division Conducts investigations (e.g., employee complaints, targeted industries) Can assess back wages, liquidated (double) damages and civil money penalties Can pursue litigation in federal court

Current Remedies Private lawsuits by employees Seek back wages, liquidated damages, attorneys’ fees and costs Collective Actions under § 216(b) “Opt-in” actions “Opt-out” actions under state wage and hour laws Criminal actions by the Department of Justice May seek criminal fines and even imprisonment

PROPOSED CHANGES

Proposed Changes Increase the minimum salary threshold for white collar exemptions to $970/week or $50,440 annually More than twice the current threshold Tied to 40th percentile for full-time salaried workers (using the CPI-U) Some estimates that could impact up to 15 million workers Increase minimum threshold for the highly compensated employee exemption to $122,148 Tied to 90th percentile for salaried workers

Proposed Changes Establish a mechanism to automatically and annually update (increase) the minimum thresholds Adjust annually to the 40 th percentile or inflation No changes to duties tests, but seeks comments regarding potential changes Speculation regarding adoption of California test DOL signaled concern regarding executive exemption (“working managers”)

When will new REGS go in Effect? DOL has said will take effect 60 days after publication March 14, 2016 – DOL sent “final” regulations to Office of Management and Budget (OMB) Normal OMB review timeline – 4-6 weeks No minimum review time for OMB, however Strong incentive to publish by May 16 (Congressional Review Act)

When will new Regs go in Effect? Possibility of a summer effective date (approx. July) Other political considerations If published July 7 → effective on Labor Day If published early-September → effective just before election

Issues and Concerns Loss of workplace autonomy, flexibility, prestige, etc. Work-from-home, job sharing, flexible schedules Not all jobs fit hourly pay model (Postdocs, coaches, recruiters) Lost opportunities for professional development Perceived demotion or loss of status for employers Increased administrative burden and costs Ongoing uncertainty as to annual updates Increased litigation

Proactive Response Immediately identify exempt positions that fall below the new minimum threshold Consider who will get a pay raise to maintain exemption Consider who will be reclassified as non-exempt Factor in likelihood of future increases when making decisions For reclassified employees, study average hours for purposes of setting new pay rates

Proactive Response Consider reclassifying other “vulnerable” positions Expect increased private litigation Expect stepped-up enforcement from DOL Ensure accurate timekeeping of all “hours worked” Train reclassified employees & managers BYOD concerns ( s, texts, phone calls) Review and update policies and procedures Policies related to working OT Policies related to recording hours worked

Proactive Response Communicate the changes Expect the unexpected Potential changes to proposed regulations Change to salary threshold Inclusion of non-discretionary bonuses Changes to automatic, annual updates Revisions to duties tests??? Timing of effective date