HR IN OVERTIME: Recap of FLSA Rules and Overtime Basics Webinar Wednesdays HR IN OVERTIME: Recap of FLSA Rules and Overtime Basics Trisha Gibo, Esq. November 2016

Definition of “Exempt Employee” Under New Regulations DISCUSSION TOPICS Definition of “Exempt Employee” Under New Regulations Potential Limitations on Changes to FLSA Regulations Best Practices on Analysis of your Workforce Prepare for Change to your Workplace Overtime Calculation Consequences for Misclassification Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Exempt from minimum wage requirements Hawaii minimum wage currently: $8.50/hour Increase to $9.25/hour on January 1, 2017 Exempt from overtime requirements Exempt status determined by statutory test Salary Test Salary Basis Salary Level Primary Duties Test Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Salary Test: Salary Basis Regularly receives a predetermined amount of compensation without regard to quality or quantity of work Must be paid the full salary for any week in which the employee performs any work Need not be paid for any workweek when no work is performed Federal Exemptions: Executives, Administrators, Professionals Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Salary Test: Salary Basis Special exceptions for certain categories Computer employees, doctors, lawyers, outside salespersons Exemptions for highly compensated employees (HCE) Current HCE total compensation at least $100,000 Effective 12/1/16 - HCE total compensation at least $134,000 Special Regulations: Teachers, creative professionals, specific industries (airlines, motor carrier, automotive sales – check with counsel HCE: at least std exempt employee weekly salary + additional comp from other sources Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Salary Test: Salary Level Current regulations Minimum salary is $455/week ($23,660/year) Effective 12/1/2016 Minimum salary will be $913/week ($47,476/year) Applicable Exemptions: Executives Administrators Professionals Computer Professionals (?) This change is specific to executive, administrative, professional exemptions. May apply to computer professionals – pending legislation to “phase-in” Not to other exemptions. Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Salary Test: Salary Level Applicability to Part-Time Employees New regulations do not allow for proration for part-time employees Included/Excluded in Salary Excludes boarding, lodging, or other facilities (i.e. benefits) May include nondiscretionary bonuses, incentive payments and commissions for up to 10% of the salary requirement if paid quarterly PART TIME New regulations does not allow for prorating of the salary level requirement for part time employees. For example, a 0.5 FTE employee does not meet the requirement if they make ½ the 913/week requirement The employee must make $913/week despite the number of hours worked or scheduled per week Nondiscretionary = paid automatically upon meeting specific goals; no question whether it will be paid Examples: bonuses in employment contract/CBA, bonus tied to performance evaluations, incentive plan bonuses Service anniversary bonus, attendance bonus, bonus for shift differential, production bonus, retention bonus EXCLUDE: holiday bonus Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Primary Duties Test 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 DON’T FORGET! Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

DEFINITION OF EXEMPT EMPLOYEE Remember: Salaried employees are not always exempt employees “Managers” or “supervisors” are not automatically exempt Only non-exempt employees should to fill out timesheets Non-exempt employees must make at least minimum wage despite their method of payment (salary, commission, combination, etc. . . ) $8.50/hour $9.25/hour 1/1/17 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

POTENTIAL LIMITATIONS ON CHANGES Trump Administration Not likely to change 12/1/16 effective date Further changes to regulations require notice-and-comment periods Potential changes after Trump takes office on 1/20/17 May include small-business exception May eliminate triennial automatic increases in salary level Automatic updates begin January 1, 2020 Next increase will be to over $51,000/year USDOL will post new salary levels 150 days in advance of their effective date, beginning on August 1, 2019 Small Business Exception (Trump brief interview on 8/12/16) If based on revenue this could help nonprofit organizations Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

POTENTIAL LIMITATIONS ON CHANGES Lawsuits Lawsuit filed by 21 states (led by Texas) Request preliminary injunction to block FLSA overtime rule Argue that FLSA does not authorize salary-level test or triennial automatic increase in salary threshold Unconstitutional infringement on state rights U.S. Chamber of Commerce + 50 business groups Argue USDOL exceeded authority when passed the rules Request expedited decision by Texas federal court Cases consolidated by Federal District Court in Texas Decision is still pending with court Decision will not likely be issued before 12/1/16 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

BEST PRACTICES FOR ANALYSIS OF POSITIONS Identify all exempt employees that make less than $913/week ($47,476/year) Reassess duties to ensure proper classification as exempt Determine whether the company will either: Increase the position’s pay to $913/week Eliminate exempt level duties Reclassify as non-exempt & leave duties and salary as-is Classify all individuals in a position the same Do not make some employees in a job classification exempt and others non-exempt Different FLSA status = confusion and likely complaints about misclassification Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

PREPARE FOR CHANGES TO YOUR WORKPLACE Timesheet and Recordkeeping Training Adding or eliminating timesheet requirements Maintaining accurate records for overtime hours worked Review Overtime Policies Prior approval from supervisor before working overtime Disciplinary action for violation of the policy Anticipate Engagement Issues Proper communication with employees Loss in productivity due to “demotion” Low morale due to decrease in the number of overtime hours ACCURATE RECORDS Watch out for telecommuting Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Calculating Overtime Myths Reality Overtime paid for work in excess of 8 hours per day Calculated using base hourly wage Based on work schedules set by company Reality Overtime only required after 40 hours in work week Based on regular rate Must compensate for all hours worked Duty hours Hours controlled Attendance required Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Overtime Employers are required to pay non-exempt employees overtime for all hours worked in excess of forty (40) in the work week Overtime Rate = 1.5 x Regular Rate Regular Rate All compensation in work week ÷ total hours worked in work week Includes all payments made to or on behalf of the employee Includes reasonable cost of board, lodging or other facilities (benefits) Tipped employees – includes amount of tip credit properly claimed by employer WORK WEEK: should be pre-set by Company – Under state law 168 hour period during 7 consecutive 24-hour periods Example: Sunday 12:00am to Saturday at 11:59pm General std for overtime pay. 29 CFR 778.107 Regular rate: 29 CFR 78-108 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Hourly Piece Rate Combo Hourly & Piece Rate Single Rate More than one rate: weighted average regular rate More than one rate: time-and-a-half for specific work Piece Rate Time-and-a-half for overtime hours worked Premium piece rate Combo Hourly & Piece Rate Day Rate or Job Rate Salary Time-and-a-half for overtime hours worked Fluctuating work week Commissions Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Hourly – Single Rate Standard time-and-a-half for overtime hours worked Example: $10.00/hour Worked 44 hours in work week Overtime Rate = 1.5 x Hourly Rate = 1.5 x $10.00 = $15.00/hour Total Comp = ($10.00 x 40 hours) + ($15.00 x 4 hours) = $400.00 + $60.00 = $460.00 Hourly rate employee 29 CFR 778.110 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Hourly – More than One Rate in Same Week CALCULATING OVERTIME Hourly – More than One Rate in Same Week Option 1: Weighted Average Regular Rate Example: Job A: $10.00/hour and Job B: $15.00/hour Worked 30 hours in Job A + 20 hours in Job B = 50 hours total Gross Wages = ($10.00 x 30 hrs) + ($15.00 x 20 hrs) = $600.00 Weighted Average Regular Rate = $600.00 ÷ 50 hours = $12.00/hour Overtime Rate = 0.5 x $12.00 = $6.00/hour Total Comp = $600.00 + ($6.00 x 10 overtime hours) = $600.00 + $60.00 = $660.00 Employees working at two or more rates: 29 CFR 778.115 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Hourly – More than One Rate in Same Week CALCULATING OVERTIME Hourly – More than One Rate in Same Week Option 2: Time-and-a-half for specific type of work Example: Job A: $10.00/hour; Job B: $15.00/hour Worked 30 hours in Job A + 10 hours in Job B + 10 OT hours in Job B Overtime Rate = 1.5 x Job B Rate (15.00) = $22.50 Total Comp = ($10.00 x 30 hrs) + ($15.00 x 10 hrs) + ($22.50 x 10 OT hrs) = $300.00 + $150.00 + $225.00 = $675.00 Must be done by prior agreement – agree that OT rate will be 1.5 x the hourly rate of the work completing Employees working at two or more rates: 29 CFR 778.115 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Piece Rate (Option 1 – overtime rate) CALCULATING OVERTIME Piece Rate (Option 1 – overtime rate) Total Earnings + (0.5 x Regular Rate) for all OT hours worked Example: Piece Rate = $0.45/piece and produced 100 items that week Worked 45 hours in work week Total Weekly Earnings = ($0.45 x 100 items) = $450.00 Regular Rate = Total Weekly Earnings ÷ Total Hours Worked = $450.00 ÷ 45 hours = $10.00/hour Overtime Rate = 0.5 x Regular Rate = 0.5 x $10.00 = $5.00/hour Total Comp = $450.00 + ($5.00 x 5 hours) = $450.00 + $25.00 = $475.00 Employee paid based on the number of items manufactured or produced Pay overtime rate on all hours worked over 40/week Pieceworker 29 CFR 778.111 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Piece Rate (Option 2 – premium rate) CALCULATING OVERTIME Piece Rate (Option 2 – premium rate) Agree to pay 1.5 x piece rate for each piece produced during overtime hours Example: Piece Rate = $ 0.50/piece Worked 45 hours in work week 400 items produced (first 40 hours) + 100 items produced (OT hours) Overtime Piece Rate = 1.5 x $0.50 = $0.75/piece during overtime hrs Total Comp = ($0.50 x 400 itms) + ($0.75 x 100 itms) = $200.00 + $75.00 = $275.00 Employee paid based on the number of items manufactured or produced Make sure that the individual is paid minimum wage Pieceworker 29 CFR 778.111 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Hourly + Piece Rate Previous agreement to pay 1.5 time hourly or piece rate for specific type of worked during overtime Example: Hourly: $10.00/hr; Piece rate: $0.50/piece; 500 items produced Worked 30 hrs in hourly job + 10 hrs in piece job + 10 OT hrs in hourly job Overtime Rate = 1.5 x $10.00 = $15.00/hour Total Comp = ($10 x 30 hrs) + ($0.50 x 500 itms) + ($15 x 10 OT hrs) = $300.00 + $250.00 + $150.00 = $700.00 29 CFR 778.420 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Day Rates or Job Rates Total Earnings + (0.5 x Regular Rate) for all OT hours worked Example: $90/day despite hours worked; 5 days per week Worked 9 hours per day Regular Rate = Total Weekly Earnings ÷ Hours Worked = ($90 x 5 days) ÷ 45 hours = $10.00/hour Overtime Rate = 0.5 x Regular Rate = 0.5 x $10.00 = $5.00/hour Total Comp = ($450.00) + ($5.00 x 5 OT hours) = $450.00 + $75 = $525.00 29 CFR 778.420 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Salary (Option 1) Salary + (1.5 x Regular Rate) for all OT hours worked Example: Employee is paid salary of $450 & worked 45 hours/week Regular Rate = Total Weekly Earnings ÷ Hours Worked = $450.00 ÷ 45 hours = $10.00/hour Overtime Rate = 1.5 x Regular Rate = 1.5 x $10.00 = $15.00/hour Total Comp = ($450.00) + ($15.00 x 5 OT hours) = $450.00 + $75 = $525.00 Entitled to total compensation + $15/hour for all hours over 40 in a work week Salaried Employees – general: 29 CFR 778.117 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Salary (Option 2 – fluctuating work week) CALCULATING OVERTIME Salary (Option 2 – fluctuating work week) Total Earnings + (0.5 x Regular Rate) for all OT hours worked Example $600/week – no matter the number of hours worked Worked 50 hours in work week Regular Rate = $600.00 ÷ 50 hours = $12.00/hour Overtime Rate = 0.5 x Regular Rate = 0.5 x $12.00 = $6.00/hour Total Comp = $600.00 + ($6.00 x 10 hours) = $600.00 + $60.00 = $660.00 Must be based on previous agreement with employee Entitled to $10/hour for all hours up to 40 in a work week + $15/hour for all hours over 40 in a work week Fixed salary for fluctuating hours 29 CFR 778.114 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CALCULATING OVERTIME Commissions Total Earnings + (Overtime Rate x OT hours worked) Example: Employee is paid salary of $350/week + $200 in commission Employee works 55 hours in the same work week Regular Rate = Total Weekly Earnings ÷ Hours Worked = ($350.00 + $200.00) ÷ 55 hours = $10.00/hour Overtime Rate = 0.5 x Regular Rate = 0.5 x $10.00 = $5.00/hour Total Comp = ($350.00 + $200.00) + ($5.00 x 15 hours) = $550.00 + $75.00 = $625.00 29 CFR 778.118 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CONSEQUENCES FOR MISCLASSIFICATION Inaccurate Time Records For Non-Exempt Employees: USDOL will ask employee to “estimate” his/her work hours per week (i.e. overtime) USDOL will calculate OT based on employee’s “estimated” hours and demand payment If employer cannot prove otherwise (with valid records), USDOL will find violation Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

CONSEQUENCES FOR MISCLASSIFICATION Inaccurate Time Records For Exempt Employees: Typical Situations: Exempt employees required to clock in on the same system as non-exempt employees so company can monitor attendance Exempt employees required to clock for purposes of calculating paid leaves Exempt employees required to use time cards for purposes of calculating bonuses Exempt employees required to clock in so company can bill customer Result: Exempt employee is converted to nonexempt and unpaid overtime is now due Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

Carefully review all your positions against the statutory test FINAL THOUGHTS Carefully review all your positions against the statutory test Properly classify your employees under FLSA Get ready to implement changes effective 12/1/16 Accurately calculate overtime Keep accurate records in accordance with state and federal law Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019

If you have any follow up questions, email us at ANY QUESTIONS? If you have any follow up questions, email us at aes@esandalaw.com tgibo@esandalaw.com For access to these materials, email bdasilva@esandalaw.com Please visit our website for more resources www.esandalaw.com Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary February 18, 2019