Fair Labor Standards Act (FLSA) New Overtime Regulations Overview Confidential

Overview The primary federal law governing overtime administration will change effective December 1, 2016. The new rules… Shape the manner in which employers are to classify employees (FLSA status: exempt/non-exempt). Determine impact of overtime treatment for non-exempt staff. New rule changes include an increase in the salary threshold used to determine FLSA status. Threshold increased from $455 per week ($23,660 annualized) to $913 per week ($47,476). New rule changes include a “duties test” to determine FLSA status based upon designated categories including Executives, Administrative, Professionals including Learned & Computer Professionals and performing “exempt” duties. Positions unaffected by new rule changes (regardless of whether salary is above or below threshold) include those in which primary duty involves “teaching”; i.e, bona fide teachers, lecturers, coaches, etc. “Highly Compensated Exemption” (HCE) has been increased from $100,000 to $134,004 for employees who perform office or non-manual work and at least one of the duties of an exempt executive, administrative or professional employee. Say: The Fair Labor Standards Act (FLSA) is the primary federal law governing minimum wages and overtime pay. Say: It generally requires employers to pay their employees at least the federal minimum wage as well as an overtime premium for hours worked in excess of 40 per workweek, usually at a rate of one and one-half times the employee’s “regular rate” of pay. Say: The FLSA requirements define what we refer to as “Non-exempt” employees 2

FLSA Determination Flow Chart Step 2: Exemption Applicability Does the employee perform any of the following types of jobs? Executive – management is the employee’s primary duty Administrative – employee performing non-manual office work Professional/Learned/Creative – employee whose work requires highly advanced knowledge/education; creative and artistic professional Computer Professional – employee involved in design or application of computers and related systems Outside Sales – employee making sales or taking orders which influence sales outside of the employer’s premises Step 1: Salary Basis Test Is the employee paid at least $913 per week (effective December 1, 2016) and not subject to reduction due to variations in quantity/quality of work performed? *Note: Some limited exceptions to the salary basis requirement. Step 3: Job Analysis / Duties Test A thorough analysis of the job duties must be performed to determine exempt status. An exempt position must pass both the salary basis AND the duties tests. YES YES NO Employee is Exempt Say: The Fair Labor Standards Act (FLSA) is the primary federal law governing minimum wages and overtime pay. Say: It generally requires employers to pay their employees at least the federal minimum wage as well as an overtime premium for hours worked in excess of 40 per workweek, usually at a rate of one and one-half times the employee’s “regular rate” of pay. Say: The FLSA requirements define what we refer to as “Non-exempt” employees Employee is Non-Exempt NO Employee is Non-Exempt 3

New Overtime Rule Options SALARY BASIS TEST EXEMPTION ANALYSIS DUTIES TEST OUTCOME Exempt employee is currently paid above new threshold of $913/wk. ($47,476 annualized). Employee performs duties consistent with applicable exemptions Performs “exempt” duties No change. Will remain as exempt employee. Exempt employee is paid below new threshold of $913/wk. ($47,476 annualized) and it is anticipated that the employee will work overtime. NOTE: Difficult to determine actual extent of overtime since it is not currently tracked for exempt employees. To remain an exempt employee consider the following options: Raise to new salary threshold. Adjust salary to include anticipated overtime to achieve threshold minimum. Explore implementing “flexible work week” for positions routinely required to work evenings, weekends, or unusual weekly schedules. Adjust employee’s workload (and/or FTE, if necessary) to accommodate more staff to cover duties Exempt employee is currently paid above new threshold of $913/wk. ($47,476 annualized) Employee does not perform duties consistent with applicable exemptions Does not perform “exempt” duties Reclassify as non-exempt employee Manage overtime Exempt employee is currently paid below new threshold of $913/wk. ($47,476 annualized) Do not adjust salary to threshold Say: If Tim makes a $30,000 salary and works 48 hours a week, we have four primary options to consider: Option 1: Reclassify Tim from salaried to hourly. Adjust his hourly rate to reflect the expected overtime hours. Option 2: Bump Tim’s salary to $50,440 and don’t worry about tracking his hours worked or paying overtime. Option 3: Reclassify Tim and don’t allow Tim and similar employees to work overtime. If Tim works unauthorized overtime, you still have to pay him for it. While you will reduce costs, in the example, you will lose 8 hours of Tim’s work. Option 4: Reclassify Tim without properly adjusting his rate of pay and watch Tim’s annual pay grow by $8,991.68. Note: Other options may exist beyond the four presented. Contact your legal counsel for other options that can work for your organization. 4

Thank You For questions about the FLSA new overtime rules, please contact any of the following: Your HRTD Consultant via telephone or email Email: HumanResourcesDepartment@UToledo.Edu Call: (419) 530-4747 Say: As a manager or supervisor, some things to consider with potential changes are Budget, Timekeeping, Manager Training, and Employee Morale. 5