FLSA Overtime Regulation 2016

Background In March 2014, President Obama directed the Department of Labor (DOL) to update the Fair Labor Standard Act of 1938 (FLSA) overtime protections Goals: Raise middle-class wages Increase the number of nonexempt workers Provide bargaining power to low-wage workers who do not have certain protections Simplify the identification of overtime-eligible employees

Final Overtime Rule – Effective December 1, 2016 Salary Threshold Standard salary level threshold placed at $47,476 per year ($913 per week) = 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South New Highly Compensated Employees (HCE) salary threshold is $134,004 annually = to the 90th percentile of full-time salaried workers nationally Employers can apply nondiscretionary bonuses and incentive payments (commissions) up to 10% of the new salary level: $4,747 Payments must be made at least quarterly Incentive plans with annual payouts will not qualify The current “exempt for overtime” salary threshold is $23,660

Final Overtime Rule – Automatic Updates Beginning on January 1, 2020, the salary level required for exemption will be automatically updated every three years Standard salary threshold is tied to the 40th percentile of full-time salaried workers in the lowest-wage region, currently the south A 7.7% increase over three years: 2020 estimated level of $51,168, similar increase for 2023 would reach $55,108, and a similar increase for 2026 would reach $59,351

Final Overtime Rule Summary Current Regulation Final Rule Salary Level $455 weekly, $23,660 annual 40th percentile of full-time salaried workers nationally $913 weekly, $47,476 annual 40th percentile of full-time salaried workers in the lowest-wage Census region (currently the South) HCE Total Annual Compensation Level $100,000 annually 90th percentile of full-time salaried workers nationally $134,004 Automatic Adjusting None Every 3 years Bonuses No provision to count nondiscretionary bonuses and commissions toward the standard salary level Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly Standard Duties Test See WHD Fact Sheet #17A for description of EAP duties No changes to the standard duties test

Exemption Requirements To be exempt an employee must be Paid at least $47,476 per year ($455 per week), and Be paid on a salary basis, and also Perform exempt job duties: Executive Exception, Administrative Exemptions, Professional Exemptions, Computer Employee Exemption, or Outside Sales Exemption

Decision Points Increase salaries to $47,476 and continue to treat employees as exempt Reclassify employees to non-exempt status using a variety of pay options Restructure jobs, workforce, or operations Pay current salaries, with overtime after 40 hours

Risks Even for members of industries that already pay most exempt employees more than the new threshold, risks will arise from: Press coverage inspiring employees and lawyers to seek avenues to recover damages More lawyers who become aware of and educated about how to file FLSA claims Marketplace chatter that leads to “me-too” concerns among a wide variety of employees http://www.wageandhourlawupdate.com/2010/07/articles/wage- and-hour/exemptions/store-managers-are-always-exempt-arent- they/

Risks Exempt employees who pay is not raised who think it should be Exempt employees whose pay is raised, but who think they should be reclassified as non-exempt/ overtime- eligible Reclassified employees who question why they weren’t classified as nonexempt, and paid overtime, all along Reclassified employees who think they were wrongly “demoted”

Solutions Draft collaborative teams Determine appropriate data and strategy Develop a communication plan Design and deploy training that imprints