1. COMPLYING WITH TEXAS WAGE AND HOUR LAWS July 27, 2016 Howard L. Steele, Jr. and Philip T. Segura

2. CONTACT INFORMATION Steele Law Group, PLLC One Allen Center, Penthouse 500 Dallas, Suite 3440 Houston, Texas 77002 Phone: (713) 659-2600 Fax: (713) 659-2601 hsteele@steele-law-group.compsegura@steele-law-group.com

3. TEXAS PAYDAY LAW Coverage The FLSA does not apply to everyone Individual Coverage; or Enterprise Coverage Texas Payday Act applies to (almost) everyone “Employer” is defined broadly: Employer means a person who employs one or more employees; or acts directly in the interests of an employer in relation to an employee Employers are not required to meet a minimum enterprise threshold like the FLSA The Act excludes governmental entities

4. MINIMUM WAGE Minimum Wage The FLSA requires $7.25 per hour but only applies covered employees The Texas Payday law requires $7.25 per hour and extends to everyone

5. PAYDAYS Exempt employees must be paid at least monthly Non-exempt employees must be paid at least twice a month Employers can’t game the system; each pay period must have, as nearly as possible, an equal number of days. Paydays must be designated or they are the first and 15 th of the month automatically

6. COMMISSIONS AND BONUSES Must be paid according to the terms of an agreement between the employee and employer; or An applicable collective bargaining agreement

7. FINAL PAY Date of payment Discharged employees must be paid not later than the sixth day after the date of discharge If not discharged, the employee must be paid not later than the next regularly scheduled payday “Discharged” means a dismissal or release from employment initiated by the employer and includes layoffs

8. FINAL PAY Vacation and Sick Leave Generally, employers are not required to pay employees for vacation and sick leave Exceptions Written agreements with the employer and employee Written policies providing for payment after separation Commissions and Bonuses Payable based on the routine or practice specified in the agreement when the employee was employed

9. FINAL PAY Withholding from final pay Employers are prohibited from withholding an employee’s wages Exceptions Court order Authorization by federal law Authorization by Texas law Written authorization by the employee

10. WAGE DEDUCTION PRACTICES Wage Deduction Basics Again, an employer cannot withhold or divert any part of an employee’s wages without authority do so Aside from federal law (typically taxes), employers typically rely on authorizations for making wage deductions

11. WAGE DEDUCTION AUTHORIZATION Specificity Lawful purpose Examples of lawful categories Wage overpayment Advances not to be recouped from next paycheck Deductions for interest on loans to employees Uniforms Credit card service charges from an employee’s tips Beware the consequences as certain deductions may result in FLSA consequences

12. WAGE DEDUCTION AUTHORIZATION Specificity Specificity Amount to be withheld Amount to be withheld Clear indication that the deduction is to be withheld from wages Clear indication that the deduction is to be withheld from wages

13. WAGE DEDUCTION AUTHORIZATION Signed by the employee Handbook acknowledgements An acknowledgement of receipt of a handbook may be sufficient It must meet all other requirements for a valid authorization These are typically harder to track Handbook acknowledgements are not a very good indicator that the deduction is to be withheld from wages Handbook revisions may result in complications Separate authorization These tend to be easier to track These tend to be a very clear indicator that a deduction will be made

14. WAGE DEDUCTION AUTHORIZATION Withheld wages not applied toward their authorized purpose are considered unlawful Special problems involving final pay It is not legal to hold a final paycheck past the deadline for reasons such as: Failure to return company property Failure to sign timesheets Refusal to sign a release/waiver of liability

15. WAGE DEDUCTION AUTHORIZATION Special problems involving final pay Special problems involving final pay The failure to return company property can be handled via a wage deduction Again, these deductions may implicate the FLSA The TWC recommends a property return security deposit agreement

16. WAGE DEDUCTION AUTHORIZATION Property Return Security Deposit Agreement Property Return Security Deposit Agreement Process An employer may deduct a portion of wages each paycheck for the deposit (provided that it does not take the employee below minimum wage) A proper wage deduction agreement is necessary

17. WAGE DEDUCTION AUTHORIZATION Property Return Security Deposit Agreement Property Return Security Deposit Agreement Covering your bases Create a separate policy regarding the deposit (to be initialed or signed) Include the agreement in the general wage deduction authorization; and Include a standalone agreement outlining: The deductions to be made The total amount to be deducted The specific equipment covered The conditions resulting in forfeiture of the deposit The ultimate return of the deposit

18. WAGE DEDUCTION AUTHORIZATION Property Return Security Deposit Agreement Property Return Security Deposit Agreement Problems Do not use this a means to have employees cover normal business costs (such as wear and tear) The loss of an item is not grounds for upgrading the equipment lost

19. CHANGES TO THE FLSA EXEMPTIONS The final rule was released on May 18, 2016 The final rule becomes effective on December 1, 2016 The rule is expected to impact 4.2 million workers nationally

20. OVERVIEW OF THE FINAL RULE Executive, Administrative, and Professional Exemptions (the “White Collar Exemptions”) Salary Requirement The current salary requirement is $455 per week (or $23,660 for a full-year worker) The new salary requirement is more than double: $913 per week (or $47,476 for a full-year worker) Other Compensation 10% of the salary requirement may be satisfied through the payment of nondiscretionary bonuses, incentives, and commissions (not allowed under the prior rule) These payments must be made quarterly or more frequently Quarterly catch-up payments are allowed

21. OVERVIEW OF THE FINAL RULE Highly Compensated Employees Total Annual Compensation The current requirement is $100,000 The new requirement is $134,004

22. OVERVIEW OF THE FINAL RULE Regular Updates The minimum salary requirements for the white collar exemptions will be updated every three years The total annual compensation for the HCE exemption will be updated every three years The first update will happen on January 1, 2020 The updated salary requirements will be published 60 days before going into effect

23. IMPLICATIONS OF THE NEW RULES Formerly exempt employees may now qualify for overtime if no action is taken Regular updates make this an ongoing problem

24. PREPARING FOR THE RULE CHANGES Examine employees currently classified as exempt Evaluate how much they are paid and how they are paid Ensure they still meet the duties test Three main options Raise salaries Keep current salaries but pay overtime Reclassify employees as non-exempt

25. PREPARING FOR THE RULE CHANGES Raising Salaries For employees close to the new salary threshold this may be the wisest decision For other employees this will be merely impracticable

26. PREPARING FOR THE RULE CHANGES Keeping current salaries and paying overtime Employees will get to keep their current salaries Overtime must be paid for all hours over 40 If the employee actually works overtime, there are practical problems in calculating overtime compensation with this model If the employee does not typically work overtime or works very little overtime, employers can simply prevent these employees from working over 40 hours in a week in the future

27. PREPARING FOR THE RULE CHANGES Reclassification Pay employees by the hour Reclassified employees will be treated like all other hourly employees With careful calculation, an employer can accomplish this without actually changing the total annual compensation of these employees Stigma problems Many employees view salaried positions as above hourly Reclassified employees may feel like they are being demoted even though their annual compensation remains the same

28. PREPARING FOR THE RULE CHANGES Recordkeeping requirements Newly created non-exempt employees will now be subject to the FLSA’s recordkeeping provisions This means employers will need keep accurate records of these employees’ hours

29. CONSEQUENCES FOR FAILING TO PREPARE The failure to prepare may result in misclassification lawsuits under the FLSA Under the FLSA, employees may recover Their unpaid wages An additional amount of unpaid damages (referred to as liquidated damages) For two years (or three years for “willful” violations) Attorney’s fees

30. CONTACT INFORMATION Steele Law Group, PLLC One Allen Center, Penthouse 500 Dallas, Suite 3440 Houston, Texas 77002 Phone: (713) 659-2600 Fax: (713) 659-2601 hsteele@steele-law-group.compsegura@steele-law-group.com