FLSA Overtime Expansion Effective December 1, 2016 Anne Brown, CCP Luisa Mahler OEO Annual Conference October 5, 2016

Fair Labor Standards Act (FLSA) Federal minimum wage $7.25/hour Overtime: At least 1.5 times the rate of pay for hours worked over 40 in workweek Recordkeeping Child labor Break time for nursing mothers Equal pay for women

FLSA Changes Overtime protections extended to workers making less than $47,476 per year ($913/week) Threshold not prorated for part-time employees Teachers, physicians & attorneys exempt from rule Current threshold $23,660 ($466/week) Salary threshold updated every three years Threshold will be 40th percentile of earnings in lowest wage region of country (currently south) Effective December 1, 2016

Current versus New $455/week $913/week Just below current poverty level for family of four 12th percentile of salaries Almost all jobs pass the duties test Double current poverty level for family of four 40th percentile of salaries More jobs that would be otherwise exempt

Who is covered under FLSA Employees who work for certain businesses or organizations (or "enterprises") are covered by the FLSA. These enterprises, which must have at least two employees, are: (1) those that have an annual dollar volume of sales or business done of at least $500,000 (2) hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies

FLSA Coverage, cont. In addition, employees in nonprofits are covered by the FLSA whose work regularly involves ‘interstate commerce’. Interstate commerce includes: Sending letters out-of-state Travel to other state Regularly making out-of-state calls Handling records of interstate transactions

Applying Overtime Exemption Test

Who Must be Paid Overtime Under FLSA Employees are subject to the overtime provisions of FLSA unless they meet the requirements of an overtime exemption test

3 Steps in Applying Exemption Test New Rule: Eff 12/1/2016 Rate of pay To be exempt must make at least $913/week ($47,476/year) Salary basis Must regularly receive predetermined weekly compensation that is not docked based on hours worked (exceptions for FML, discipline and jury duty) Government employers can pay on salary basis and require use of leave time If paid hourly than must be subject and get 1.5 OT Standard duty tests Executive Administrative Professional Must meet all three requirements to be exempt from overtime

Salary Salary Basis Employee must be paid a predetermined and fixed salary that is not subject to deduction due to variations in quantity or quality of work (no docking rule) Exception: Public employers may dock exempt employees who miss work and have used all paid leave. Salary Level Employee must earn a certain minimum salary per week.

Standard Duty Tests Executive Administrative Professional To be exempt from overtime requirements, a job must pass three exemption tests; 1) the pay rate test, 2) the salary basis test and 3) one of the below duty tests Executive Administrative Professional The employee’s “primary duty” must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise, and managing 2 fulltime employees The employee’s “primary duty” must include the exercise of discretion and independent judgment with respect to matters of significance. The employee’s “primary duty” must be to primarily perform work that either requires advanced knowledge in a field of science or learning, or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Exemption Test Example Example # 1: Current rule Example # 2: New rule, effective 12/1/2016

Exemption Test – Current Rule Example 1 BUDGET ANALYST: Responsible for the budgeting functions and related financial systems in the Division. Position has a key responsibility for complex budget issues. Position regularly serves a critical role in the design and coordination of high level Division-wide projects. Position provides consultation, technical assistance, and coordination in the preparation and execution budgets which may utilize multiple funding sources. issues.  The position is one of only two positions within the Division with the competency level to perform budget and finance duties. Meets Requirement ? Administrative exemption Budget Analyst Yes Paid at least $455/week? Actual pay: $41,552 or $799/week Paid on a salaried basis? Paid on a salary basis Exercises discretion and independent judgment with respect to matters of significance. Discretion: Design and coordinate division-wide projects Matters of significance: Division budget and financial systems This job meets all 3 exemption tests and may be exempt from the OT requirements of FLSA

Exemption Test – New Rule Example 2 BUDGET ANALYST: Responsible for the budgeting functions and related financial systems in the Division. Position has a key responsibility for complex budget issues. Position regularly serves a critical role in the design and coordination of high level Division-wide projects. Position provides consultation, technical assistance, and coordination in the preparation and execution budgets which may utilize multiple funding sources. issues.  The position is one of only two positions within the Division with the competency level to perform budget and finance duties. Meets Requirement ? Administrative exemption Budget Analyst No Paid at least $913/week ($47,476 annually)? Actual pay: $41,552 or $799/week Yes Paid on a salaried basis? Paid on a salary basis Exercises discretion and independent judgment with respect to matters of significance. Discretion: Design and coordinate division-wide projects Matters of significance: Division budget and financial systems This job does not meet all 3 exemption tests and therefore must be subject to the OT requirements of FLSA

Exemption Test – New Rule Example 3 BUDGET ANALYST Meets Requirement ? Administrative exemption Budget Analyst Yes Paid at least $913/week ($47,476 annually)? Actual pay: $55,000 or $1,058/week Paid on a salaried basis? Paid on a salary basis Exercises discretion and independent judgment with respect to matters of significance. Discretion: Design and coordinate division-wide projects Matters of significance: Division budget and financial systems In example 3, above, the employee is performing the same job as the employee in example 2. Example 3 employee meets all 3 parts of the exemption test due to a higher salary. The employee in example 3 may be considered exempt from the OT requirements of FLSA. Employee in example 2 MUST be subject to the OT requirements of FLSA. Two employees performing same job can have different FLSA OT status.

Other factors affecting overtime

FLSA Workweek An employee's workweek is a fixed and regularly recurring period of 168 hours -- seven consecutive 24-hour periods. Workweek does not need to coincide with the calendar week. Workweek may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees. Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.

Workweek Examples Sunday, 12:00 AM (midnight) – Saturday, 11:59 PM Monday, 12:00 AM (midnight) – Sunday, 11:59 PM Thursday, 12:00 AM (midnight) – Tuesday, 11:59 PM

Compensable Hours Suffered or Permitted Compensable hours are time employees are "Suffered or Permitted" to work. Work performed is counted as work time and must be paid regardless of whether employer approved work time. Example Employee voluntarily continues to work at the end of the shift to finish an assigned task or to correct errors. The reason is immaterial. The hours are work time and are compensable.

Teleworking Understand employee teleworking practices Checking emails and making phone calls remotely and after hours. COMPENSABLE!

Recordkeeping Employer must keep certain records for each FLSA subject employee Employee's full name and social security number. Address, including zip code. Birth date, if younger than 19. Sex and occupation. Time and day of week when employee's workweek begins. **Hours worked each day. **Total hours worked each workweek. Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework") Regular hourly pay rate. Total daily or weekly straight-time earnings. Total overtime earnings for the workweek. All additions to or deductions from the employee's wages. Total wages paid each pay period. Date of payment and the pay period covered by the payment. **Must track hours worked (and other info) for all newly subject employees. Make sure that processes are in place.

Business Challenges

Challenge - Exempt and Subject in Same Job Exempt and subject employee in same job Example two accountants performing same work. One exempt from OT and other employee subject to OT because salary below $47,476 Can leave as is Possible employee issue. Happening across all employers Can increase pay to maintain exempt status Can voluntarily make exempt employee subject (will increase OT cost).

Understanding OT Costs Overtime must be paid for all hours worked over 40, whether approved or unapproved Manage OT costs Cover for unplanned absences Understand costs of newly subject employees Watch for time worked remotely on emails, phone calls etc Include matching employer contribution costs, i.e. retirement Estimate potential OT costs Consider tracking hours of exempt employees to estimate liability as of December 1

Raise salaries above the new threshold to reduce OT Alternatives Raise salaries above the new threshold to reduce OT Could cause salary compression issues with other employees Consider sustainability of increasing salaries. Salary threshold will increase every 3 years Make no changes and pay OT Restructure work assignments to manage OT Add additional staff to reduce OT

Understand your workforce How many exempt employees make less than $913/week ($47,476/year) Which employees work overtime How much overtime do these employees work? How much would this overtime cost?

Added Risks US Dept of Labor conducting more agency- initiated audits Increased in penalties for non-compliance Higher fines for willful violations than unintentional errors Deter violators and benefit employers following the law Increase fines to keep up with inflation. Many fines have not increased since 1990. Possible sanctions are a fine of up to $10,000 and up to six months in prison.

Preparation for Employees and Supervisors Set up system for supervisors to approve time worked Provide talking points to communicate affected employees Train supervisors Understand how to manage workload to avoid working overtime

Employee Communication Changes driven by changes in federal law Moving from exempt to subject is not a demotion Importance of tracking hours worked

Disclaimer Note: This information is provided for information and is not formal advice. Consult a professional for advice on individual circumstances.