Department of Labor’s New Overtime Exemption Rules Explaining the Obama Administration’s Overtime Expansion Regulations June 8, 2016

More employees will be eligible for overtime pay starting Dec. 1, 2016 The headline: More employees will be eligible for overtime pay starting Dec. 1, 2016 Salary threshold for overtime pay has been raised from current level of $23,660 to $47,476. Applies to executive, administrative, and professional employees Threshold will rise automatically every 3 years

Weekly Salary Threshold for EAP Overtime Exemption Has Eroded Over Time Due to Inflation Historical Weekly Salary Threshold for EAP Exemption Adjusted for Inflation ■ 2015 dollars ■ Nominal dollars Final 2016 Threshold The weekly salary threshold for the EAP exemption has been updated 7 times since its inception in 1938; however, it’s only been updated once since 1975, and not enough to bring the threshold up to previous levels after accounting for inflation Inflation essentially repeals regulations, making it necessary to continuously adjust the salary threshold Source: National Journal Research 2016; Ben Gitis, “Primer: Overtime Pay Regulation,” American Action Forum, November 20, 2014; Bureau of Labor Statistics. May 19, 2016 | Christine Yan

Key definitions for understanding overtime exemptions Salaried EAP or HCE employees may be exempt from overtime pay under the Fair Labor Standards Act if their salary falls above a certain threshold and if they satisfy one of the Executive, Administrative, Professional, and HCE duties tests In May 2016, the Obama administration’s Department of Labor raised the overtime exemption threshold to $47,476 (annual compensation) for EAP employees An increase in the thresholds would make fewer employees exempt from premium overtime pay EAP Employee Salaried employees making less than $100,000 annually whose duties meet guidelines set by the Department of Labor which classifies their role as Executive, Administrative, or Professional. HCE Employee Highly Compensated Employees are classified as such if their annual compensation is $100,000 or greater. Executive Duties Test Administrative Duties Test Professional Duties Test HCE Duties Test All of the following must be satisfied: Primary duty is managing the enterprise or subdivision of the enterprise Regularly direct at least two full- time employees Have authority or significant influence in hiring decisions All of the following must be satisfied: Primary duty is office or non- manual work related to management or general business operations Primary duty requires use of discretion and independent judgment All of the following must be satisfied: Primary duty is intellectual in character and requires advanced knowledge in a field of science or learning Advanced knowledge is acquired by a prolonged course of specialized intellectual instruction Employee must regularly perform at least one of the duties of an EAP employee Source: US Department of Labor Wage and Hour Division, “Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act.”

Limited enforcement exemption Medicaid home and community-based services providers… …who offer residential treatment …to persons with intellectual and developmental disabilities …in facilities with 15 or fewer beds Have until March 17, 2019 to comply with the new salary threshold.

A few reminders about employees’ time What is “compensable time?” Any time the employer “suffers or permits” an employee to perform the principal activity for which the employee was hired for the benefit of the employer. This includes all time worked while at the office, work performed at home, and even work that is performed before or a.fter the regular workday

Off the clock, on call Work performed outside of regular work hours (e.g. work from home, coming in to the office early) is compensable Hours when an employee is on call and on the premises (e.g. serving on call time in a hospital break room) are compensable Hours when an employee is on call but at home (or elsewhere off site) are NOT compensable

Seminars, lectures, training Attending lectures, meetings, training programs, and similar activities outside the office is compensable time for non-exempt employees unless all of the following criteria are met: Attendance is outside the employee's regular working hours; Attendance is voluntary; The course, lecture, or meeting is not directly related to the employee's job; and The employee does not perform any productive work during such attendance.

Travel Home-to-work is NOT compensable Travel during work hours IS compensable Travel to a work function during non-work hours is compensable when the employee drives him- or herself or when he/she performs work during the travel hours (e.g. on a plane)

4.2 mil employees newly eligible The Department of Labor Estimates 1.2 Million Employees Would See Wage Increase From New Regulations Number of Currently Exempt Employees Who Would Gain Overtime Benefits EAP Employees 4.2 mil employees newly eligible Assuming no response from employers (i.e. reclassifying employees), around 4.2 million employees would become newly entitled to overtime pay, and 8.9 million would have their overtime protections strengthened The Department of Labor estimates that in total, employee compensation would increase by $1.2 billion per year over the first ten years However, these numbers are unrealistic, as employers’ responses to the regulation changes would likely affect employees’ eligibility HCE Employees 65,000 employees newly eligible Additionally 8.9 mil employees will have their protections strengthened Source: Department of Labor, May 2016.

Employers May Respond to New Overtime Regulations With Cost-Cutting Measures Possible Actions Employers May Take and How Employees Would be Affected 1. RECLASSIFY SALARIED WORKERS AS HOURLY WORKERS Guaranteed overtime pay, but average hourly wage may be lowered in order to keep total weekly compensation constant, and benefits may be reduced to offset employer administrative costs Less flexibility, unlikely to be able to work remotely due to hour-tracking requirements Fewer opportunities for advancement 2. REDUCE HOURS TO AVOID OVERTIME PREMIUMS Limited to 40-hour workweek (unrealistic for many businesses) Less flexibility, unlikely to be able to work remotely due to hour-tracking requirements Reduced bonus/benefits/base wages to offset employer costs 3. INCREASE SALARY OF EMPLOYEES NEAR THRESHOLD Employees with salaries slightly below the threshold may have their salaries increased to keep them exempt from overtime pay Bonus/benefits may be reduced to offset the salary increase Source: Corey Stern, “Goldman Sachs thinks new overtime pay rules could increase total employment – but do nothing for wage growth,” Business Insider, July 7, 2015.

Rate study & state advocacy Ability to respond to overtime increases limited by rates set by third-party payers State level advocacy support Economic impact study Advocacy materials to make the case to state legislatures for raising rates

Protecting Workplace Advancement & Opportunity Act (S. 2707/H.R. 4773) Would force DOL to nullify its final rule Requires new economic impact analysis examining effect on employers 42 Senate cosponsors, 174 House cosponsors

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