Meredith Schramm-Strosser Joy C. Einstein SHULMAN, ROGERS, GANDAL, PORDY & ECKER, P.A PARK POTOMAC AVENUE, 6 TH FLOOR POTOMAC, MD 20854

OVERVIEW Background New FLSA Rules What the New Rules Mean in Practice What Employers Should Do PLUS insight into Montgomery County’s new Sick and Safe Leave Act *

Back to the basics…. The law starts with the presumption that all employees are non-exempt employees. Employer bears the burden of proving that employee is exempt, i.e., not owed overtime for hours worked over 40 per week. These laws apply to the vast majority of employers and non-profits. Enterprise Test - For non-profits, you are covered if your business activities (i.e., not your charitable activities) result in annual sales or business of at least $500,000 per year. Income from contributions, membership fees, most dues, and donations used for charitable (as opposed to operational) activities do not count toward the $500K threshold. Individual Test - FLSA may apply to individual employees – if employee regularly engages in interstate commerce as part of job (very common in DMV) Hospitals, schools/preschools, gov’t agencies, business providing medial or nursing care for residents = covered by FLSA regardless of annual revenue. *

What Led to this Change? No increase in salary minimums for over a decade Overall wage and hour changes Obama’s 2014 Directive directed the Department of Labor (“DoL”) to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards DoL Final Rule published on May 18, 2016 extending overtime pay to millions of additional workers *

Who Does it Apply to? EMPLOYEES! These rules do not apply to independent contractors. Beware – Are your independent contractors’ categorizations correct? The new rules apply to determine if an employee is properly exempt from overtime pay. Most common categories of exempt workers: Professional Exemption ; Administrative Exemption; Executive Exemption; Highly-Paid Employee Exemption *** There are others that may apply. How does one qualify to be in these categories? SALARY TEST + JOB DUTIES = EXEMPT STATUS *

Who Does It Apply To, Cont’d? Whether an employee’s job duties fall into one of these categories is a factual analysis. Executive Exemption: Employee’s primary duty must be managing the business/enterprise, or managing a customarily recognized department or subdivision Must regularly direct the work of at least two or more other full time employees, or equivalent (e.g., 4+ part-time employees) Hallmarks of managerial authority, e.g., hiring/firing capabilities. Administrative Exemption: Primary duty = performance of office or non-manual work related to the employer’s business operations/management, or the business operations/management of the employer’s customers. Includes regular exercise of discretion and independent judgment with respect to “matters of significance” *

Who Does It Apply To, Cont’d? Professional Exemption: “Learned Professional” Exemption - Primary duties must be work requiring “advanced knowledge” – i.e., predominantly intellectual in character, and consistently requires exercise of discretion and judgment; “advanced knowledge” - must be fields of science or learning, and must be “customarily acquired by a prolonged course of intellectual instruction.” E.g., doctors, lawyers, persons with advanced degrees “Creative Professional” Exemption – primary duties “must be the performance f work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor” Highly Compensated Employee Exemption: They make at least the minimum monetary threshold (previously $100,000.00, under the new regulations, $134,004.00). Perform at least one of the duties described in either the professional, administrative, or executive exemption category. *

New Salary Thresholds Salary for Exec/Admin/Prof’l Will change from $455/week ($23,660/year) to $913/week ($47,476/year) Salary for Highly Compensated Employees: Will change from $100k/year to $134k/year (which must include a minimum salary of $913/week), in other words, a change from $100K per year, to $134,004 per year. Tri-ennial automatic increases *

Change to Bonuses 10% of salary level can be satisfied with non-discretionary bonuses, commissions, and other incentive pay, if paid at least quarterly (although catch-up is allowed on a quarterly basis) *

Practically, What Will This Mean for Employees? Exempt Employees will likely:  Be assigned additional job duties  Will be asked to work longer hours  Will have more homogenous salaries  Will see fewer new hire positions *

Practically, What Will This Mean for Employees? Non-Exempt Employees will likely:  Have more restrictions on what duties they can perform  Receive fewer opportunities for training or advancement  Will likely be at risk of being moved to part- time *

Practically, What Does This Mean for Employers? Raise salary to new minimum to maintain the exemption OR Reclassify employees as non-exempt and pay overtime *

Which Option is the Correct Option? For exempt positions, also go back and review the number of overtime hours employees work If they do not work much overtime, consider whether they could be reclassified as non-exempt to avoid raising salary. Consider what duties you could reassign to others If they do work a lot of overtime, consider what other cutbacks you can make in order to bring their salary to the new required salary level. Consider how many more hours you could ask them to work each week to offset the salary increase *

How to Reclassify an Employee as Non-Exempt * Figure out how much overtime they will likely work first, then consider other benefits you are saving on for which non-exempt employees are not eligible, and figure out salary from there Reduce their number of scheduled hours so that they are less likely to go above 40 Transfer certain tasks to exempt employees Figure out which pay system is best: Hourly plus overtime Salary plus overtime (including fluctuating workweek salary) Commissions plus overtime

How to Reclassify an Employee as Non-Exempt * Do some PR work Highlight that the changes are required by the DoL Emphasize that they are still important to the Organization Tout the ability to earn overtime

How to Reclassify an Employee as Non-Exempt * Keep track of all time worked! Train employees and managers how to do this! Restrict work outside of normal working hours (like on mobile devices and remote servers) and unauthorized overtime Update job descriptions, offer letters, and employee handbooks Consider timing of this year’s pay increases Conduct audit of overtime and job duties

MoCo Sick and Safe Leave Effective October 1, 2016 Applies to: Employers who employ one or more employees in the County (aka ALL employers) All employees, even PART TIME EMPLOYEES Exemptions: Employees who work 8 or fewer hours/week Employees who do not have a regular work schedule Employees who contact the employer for assignments or who have no obligation to work unless they make contact Independent contractors *

Requirements For employers with 5 or more employees: one hour of paid leave for every 30 hours worked, not to exceed 56 hours of earned paid leave in a calendar year For employers with fewer than 5 employees: one hour of paid leave for every 30 hours worked, not to exceed 32 hours PLUS 24 hours of unpaid leave Employers who utilize the accrual method must permit earned unused leave to carry over from year to year (up to an annual carryover cap of 56 hours) *

Other Details Employees must be able to use this leave for their own illness, their family members’ illnesses, to obtain preventative care, or for domestic violence, sexual assault, etc. Employers CANNOT require employees to find their own replacements in order to take sick days Employers CANNOT require employees to disclose specific details about their illness Employers MUST show employees the amount of available leave they have each pay period Employers MUST let employees know how sick and safe leave is accruing, what they can use it for, and that they cannot be retaliated against for using it *

THE END *