New Fair Labor Standards Act (FLSA) Overtime Rules – Just One More Reason Presented by: Ellie Panhuise, Director of HR Solutions & Steve Usarzewicz, Director Time & Labor Management

What is the Fair Labor Standards Act (FLSA)? FLSA was passed in 1938, and was touted as providing minimum protections to individual workers, ensuring that covered employees would receive a fair day’s pay for a fair day's work and protecting them from the “evil” of overwork as well as underpay.   FLSA establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments. FLSA determines whether a position is eligible for overtime pay. An "exempt" position is not eligible for overtime pay. A "non-exempt" position is eligible and must receive overtime pay at time-and-one-half for any hours worked above 40 hours in one workweek.

According to the Department of Labor (DOL), 7 According to the Department of Labor (DOL), 7.4 million employers could be affected with the changes, with 4.2 million employees becoming immediately eligible for overtime and another 8.9 million indirectly affected. It’s expected to boost wages for workers by $12 billion over the next 10 years.

OT Regulation Amendments The primary focus of the Amendments is an increase to the minimum salary and compensation level for the executive, administrative, and professional employees (EAP) to be exempt from overtime payment.

»Current Exempt Salary Level (est. 2004) Key Changes... »Current Exempt Salary Level (est. 2004) $23,660 annual; $455 weekly »New Rule: $47,476 annual; $913 weekly »Effective Date: December 1, 2016

Other Key Provisions Annual HCE Compensation: $134,004. Automatic updates for salary and compensation levels every three years. Permits inclusion of Non Discretionary and Incentive Payments.

Highly Compensated Employees (HCE’s) Criteria: Employee earns total annual compensation of $134,004 or more, which includes at least $913 per week paid on a salary basis; Employee’s primary duty includes performing office or non-manual work; and Employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Nondiscretionary Bonus A non-discretionary bonus is tied to a measurable objective such as productivity, revenue, achievement of goals, tenure or other measurable factor. It does not include spot bonuses that are made arbitrarily at the discretion of the employer. Non-discretionary bonuses are included when determining the overtime rate of pay.

Example for Nondiscretionary Bonus Annual Salary: $48,000 10% = $4,800 Base salary = $43,200 $4,800 / 4 quarters = $1,200 Employer may apply up to $1,200 per quarter toward meeting the minimum salary requirement* *10% is the maximum that can be applied even if employee earns more in incentive payments.

Automated Increases Annual lncreases for both minimum and HCE salary levels. Maintain the percentage allocations at a. 40% for minimum salary level b. 90% for minimum HCE salary level Automatic increases based upon lowest-wage Census Region (currently the South) Updated rate will be posted in the Federal Register at least 150 days before effective date.

ALL Jobs are Non-Exempt Unless YOU Prove Otherwise Most workers are employees under the FLSA. To view definitions, please view: U.S. Department of Labor Wage and Hour Division Fact Sheet #13

The Potential Cost of Doing Nothing Assume 3.2 Hours per employee, 48 weeks/year 153.6 hours year/EE Hourly Rate $913/ 40 = $22.80 $3505.92 per employee, $35K per every 10 EE’s Studies suggest that 10-30% of employers misclassify their EE’s as independent contractors. In 2014 79% of DOL investigations resulted in back payment of wages

Three Tests to Determine “Exempt”: Salary Basis, Duties and Salary Level A position may be considered exempt under the FLSA if it meets three tests: Employee must be paid on a fixed salary basis, not an hourly basis Duties must meet criteria for executive, professional, administrative, computer or outside sales activities Compensation rate (pro-rated full-time rate if part-time) must be at least $47,476 annually (effective December 1, 2016) **If any of these tests are not met, the employee shall be considered non-exempt, and eligible for overtime. This new ruling helps to ensure that non-exempt employees will get paid for every hour worked.

Remember...the burden of proof is YOU! Duties Test Remember...the burden of proof is YOU! Executive Exemption: Supervise two or more FTEs (or equivalent) Primary duty is to manage the enterprise, a division, a department. Must have the authority or a strong impact on hiring or firing other employees Administrative Exemption: Primary duty must be the performance of office or non-manual work directly related to the management or general business operations; and Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance Professional: Requires advanced knowledge (work which is primarily intellectual in character and which includes work requiring the consistent exercise of discretion and judgment

Discretion and Independent Judgment… Does not include: Applying well established techniques Clerical or secretarial work Recording or tabulating data Performing routine work

Other Exemptions Computer Professional: Remains at $27.63 per hour if paid hourly; increases to $913 per week, if paid salary. »Outside Sales »Lawyers »Doctors »Teachers

ARE YOU READY TO GO??? OR READY TO PANIC???

(If you haven’t already) Strategic Planning (If you haven’t already) Analyze your current workforce. Formulate a plan.

Step-By-Step Compliance Identify employees who need to be reclassified Even if salary level is not an issue you may have employees who do not meet the duties requirements for exemption This is now a rare opportunity to correct classification issues with reduced risk of triggering litigation, but if an employee has been misclassified as exempt, the employer should consult legal counsel to discuss how to best address the misclassification. Develop new compensation plan(s) for the reclassified employees Review wage-hour policies and processes Review timekeeping policies, processes & training Communicate the changes to all employees Train the reclassified employees and their managers

Employer Options Increase salary to minimum $47,476 and keep exemption status Reclassify as non-exempt and absorb overtime costs Reclassify as non-exempt and reduce hourly rate of pay to allow the overtime costs to bring the employee up to current salary level Reclassify as non-exempt and eliminate overtime Hire part-time workers Eliminate unnecessary tasks Allocate tasks more broadly across department Outsource

Benefits/PTO Meal and rest breaks Overtime allowance Travel pay 　Review Current Policies Benefits/PTO Meal and rest breaks Overtime allowance Travel pay Telecommuting Training/Meetings Prep Time After Hours Work Related Calls/Emails

3 Potential Strategies Option 1 Raise salary to $46,474 (or $913 per week) Option 2 Manage employees hours not to exceed 40 hours* Option 3 Based on time study, set hourly rate so that earnings with overtime will not result in higher total wage than current salary* *requires time system, communication of new policy to employees

Option 2: Waiting until the end of the period to report hours is too late

Option 2: Utilize real-time data to manage hours Review on Wednesday for total exceeding 24 hours Adjust schedule to eliminate overtime Job Cost : Travel Time Training/Meetings Prep Time After hours work related calls/emails

Suggestions to mitigate/overcome morale issues Transparency - everyone tracks time the same way Increase ease of access to employee functionality Employee self service Mobile app / accessibility Real time benefit accruals interaction Time off request Time off calendar integration with Google Calendar/Outlook

Timekeeping Best Practices *as suggested by Labor Management Institute

Example: Employee with salary of $40,000 averages 48 hours per week Option 3 Example: Employee with salary of $40,000 averages 48 hours per week $40,000/2080 hrs. = $19.23 per hour non-exempt regular rate ($769.23 weekly) 8 hours weekly overtime @$28.85/hr. adds $12,000 annually in additional wages Total compensation rises to $52,000

40x + (Weekly OT Hrs X 1.5)x = Weekly Salary Option 3 Wage Alignment Formula x = hourly rate 40x + (Weekly OT Hrs X 1.5)x = Weekly Salary 40x + (8 X 1.5)x = $769.23 40x + 12x = $769.23 52x = $769.23 x = $14.79 ((40 x $14.79) + (8 x $22.19)) = $769.23 $591.60 + $177.63 = $769.23 $769.23 X 52 = $40,000

Financial preparation Benefits preparation Communications preparation 　Employer Preperation Financial preparation Benefits preparation Communications preparation

Morale, retention, productivity, work relationships, job satisfaction 　Salary Compression Salary compression -little or no differences in pay, yet large differences in responsibilities, skill level or qualifications. Pay Transparency Morale, retention, productivity, work relationships, job satisfaction

Tools to prevent salary compression Communication Variable pay for high performing Review salary structures Market competitiveness

Communications to Employees One on one Group meetings Put changes in writing (Document!!)

Summary Review exempt employee salary levels and hours worked Review benefits and paid time off plans that are segregated by exempt/non-exempt status Review overtime needs Prepare communication methods for employees

Q & A

Resources: ThinkHR - https://www.thinkhr.com/ DOL/FLSA - https://www.dol.gov/whd/flsa/ Labor Management Institute

Thank you!