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Please consult an attorney if you have specific legal issues. Disclaimer This presentation is provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult an attorney if you have specific legal issues.

DISCUSSION TOPICS Definition of an Exempt employee Exemptions under the Fair Labor Standards Act Difference between FLSA and State wage and hour laws

DEFINITION OF EXEMPT EMPLOYEE Exempt vs. Nonexempt Employees “Exempt” employee Exempt from minimum wage and/or overtime provisions “Non-exempt” employee Employer must keep accurate records of time worked Employee must (a) receive a minimum wage; and (b) receive overtime pay for hours worked above 40 in a work week Minimum wage is set by state law for non-union employees

DEFINITION OF EXEMPT EMPLOYEE Tests for Exempt Employees under FLSA (federal) Primary Duties Test Must meet tests set in regulations Salary Basis Test Currently, must provide guaranteed minimum salary of $455 per work week ($23,660 per year) Effective 12/1/2016 the guaranteed minimum salary for an exempt employee will be $913 per work week ($47, 476 per year)

DEFINITION OF EXEMPT EMPLOYEE Primary Duties Test Refers to principle, main, major or most important duty employee performs Relative importance of duties Amount of time spent on exempt work Employee’s relative freedom from direct supervision Relationship between employee’s salary and wages paid to other employees Time spent not sole test, although 50% or more of time spent performing exempt work satisfies requirement Regulations also provide other guidelines

FLSA EXEMPTIONS Federal Exemptions Special Regulations Executives Administrators Professionals Computer employees Outside sales persons Special Regulations Teaching professionals Creative professionals Specific industries Airline industry Motor carrier industry Automotive sales Etc. (check with legal counsel)

FLSA EXEMPTIONS Test for Executives Minimum salary of $455 per week Effective 12/1/16, minimum salary of $913 per week Primary duty is: Management of enterprise or recognized department or subdivision, Customarily & regularly directs work of 2 or more full-time employees, and Authority to hire or fire, or recommendations on hiring, firing, advancement, promotion or other changes of status given “weight”

FLSA EXEMPTIONS Parameters for Executives Individuals who own 20% or more of equity and who actively manage are exempt Regs have examples of “management” activities If employee “manages” a department, must be a department or subdivision that has a permanent status or continuing function Can have more than 2 managers per department Must have 2 FTE per manager No overlap of employees or hours

FLSA EXEMPTIONS Parameters for Executives Manager makes recommendations, must review: Whether it’s part of employee’s duties to make recommendations, and The frequency with which the recommendations are made, requested or relied upon Employee does exempt & nonexempt work Exempt employee is responsible Nonexempt employee ordered to do both

Test for Administrators FLSA EXEMPTIONS Test for Administrators Minimum salary of $455 per week Effective 12/1/16, minimum salary of $913 per week Primary duty is: Performance of office or non-manual work directly related to management or general business operations of employers or customers Includes exercise of discretion & independent judgment on matters of significance

Parameters for Administrators FLSA EXEMPTIONS Parameters for Administrators Related to management or business operations Assisting with running or servicing of employer’s business, or Management of general business operations of employer’s customers Regs give examples

Parameters for Administrators FLSA EXEMPTIONS Parameters for Administrators Discretion & independent judgment Whether employee has authority to make independent decision on matters of importance or consequence Decision made free from immediate direction or supervision Decision made after comparing and evaluating possible courses of conduct

FLSA EXEMPTIONS Parameters for Administrators Factors on discretion/judgment Authority to formulate, affect, interpret, implement management policies or practices Carriers out major assignments Work substantially affects business operations Authority to commit the company resources Authority to waive policies & procedures Authority to negotiate & find company Consults or provides expert advice to management Involved in planning business objectives Investigates & resolves significant issues Represents company in grievances or complaints

Parameters for Administrators FLSA EXEMPTIONS Parameters for Administrators Judgment must involve more than use of established techniques, procedures or application of specific standards Routine or clerical work doesn’t qualify Does not have to be “final” decision-maker Regs contain examples

Test for Professionals FLSA EXEMPTIONS Test for Professionals Minimum salary of $455 per week Effective 12/1/16, minimum salary of $913 per week Primary duty is: Knowledge of an advanced type in field of science or learning customarily requiring prolonged, specialized intellectual instruction; or Invention, imagination, originality or talent in field of artistic or creative endeavor

FLSA EXEMPTIONS Parameters for Learned Professionals Advanced knowledge used to analyze, interpret or make deductions from varying facts; beyond high school knowledge Refers to traditional professions Specialized academic training is prerequisite to entrance into profession Excludes occupations where individual only have general knowledge and skills gained through apprenticeship or performance of routine mental, manual, mechanical or physical processes Regs provide examples

FLSA EXEMPTIONS Test for Computer Employees Minimum salary of $455 per week or $27.63 per hour Effective 12/1/16, minimum salary of $913 per week (?) Primary duty is: Application of systems analysis techniques and procedures Design, development, documentation, analysis, creation, testing or modification of systems or programs Design, development, documentation, analysis, creation, testing or modification of operating systems Any combination of above

Parameters for Computer Employees FLSA EXEMPTIONS Parameters for Computer Employees Job titles not determinative; focus is on whether individual performs duties/functions Exemption does not include employees engaged in manufacture or repair of hardware or related equipment Individuals who simply use computers or programs do not qualify

Test for Outside Sales Employees FLSA EXEMPTIONS Test for Outside Sales Employees Primary duty is: Making sales or Obtaining orders or contracts for services or for use of facilities for which consideration is paid; and Who is customarily and regularly engaged away from the employer’s place of business

FLSA EXEMPTIONS Parameters for Outside Sales Sales involves transfer of title to tangible property or tangible & valuable evidence intangible property Includes obtaining orders or contracts, consignments, shipment for sale, or other disposition Work that is incidental to or done in conjunction with sales is part of exempt work Sales done at customer’s place; can include hotel rooms or trade shows

Parameters for Outside Sales FLSA EXEMPTIONS Parameters for Outside Sales Promotional work done in conjunction with outside sales or solicitations is exempt Drivers who sell and deliver may qualify only if their primary duty is to make sales Look at specifics of each case Regs give examples

FLSA: SALARY BASIS TEST Salary Requirement Paid full salary/week Salary excludes board, lodging, etc. Special exceptions from minimum salary for certain categories Deductions Limited Must fall into specific situations Requires written policy Improper deductions converts exempt employee to non-exempt employee

FLSA: CHANGES IN SALARY BASIS TEST Raises minimum salary requirements for bona fide executive, administrative, and professional employees (the “white collar exemptions”) From $455 per week ($23,660 per year) to $913 per week ($47,476 per year) for full-time salaried workers Effective date is December 1, 2016 Raises overtime exemption for highly compensated employees (HCE employees) From $100,000 to $134,004 per year Nondiscretionary bonuses, incentive payments and commissions may be considered as part of salary for purposes of meeting threshold, provided they are paid at least quarterly Only applies to non-HCE employees Maximum amount of bonuses, incentive payments and commissions that may be counted toward the threshold is 10% of the salary requirement (i.e. $91.30 per week or $1,186.90 per quarter) Establishes automatic updates in salary threshold every three years Minimum salary requirement is pegged to 40th percentile of FT salaried works in lowest-wage Census region HCE threshold is pegged to 90th percentile of FT salaried workers nationally Automatic updates begin January 1, 2020 USDOL will post new salary levels 150 days in advance of their effective date, beginning on August 1, 2019

FLSA vs. STATE LAW Exempt Categories Under Hawaii Wage & Hour Law Bona fide executives Bona fide administrators Bona fide supervisors Bona fide professionals Outside salespersons Outside collectors State regulations have their own duties tests and salary tests

RECONCILING FEDERAL & STATE LAW If federal and state have concurrent jurisdiction, agencies will apply law that is more favorable to the employee Hawaii exercises jurisdiction if exempt employee’s guaranteed compensation is less than $2000/month ($24,000/year)

FINAL THOUGHTS Wage and hour law is heavily regulated Check federal and state regulations before you classify someone as exempt Remember there are also restrictions in handling of salary for exempt employees Penalties for failure to properly classify, or to properly handle salary, are significant If in doubt, check with legal counsel If you want more information on calculation of pay, let us know