1. U.S. Department of Labor’s New Overtime Rules Implications of Increased Overtime Exemption Thresholds Eileen Cull Valdez SPHR, SHRM-SCP Human Resources Director

2. Agenda 1.The basics on overtime rules 2.The government’s recent rule changes 3.Suggestions, Best Practices, Thoughts 4.Common options that employers are contemplating 5.What the implications are if these options are taken 6.Items to think about 7.Common Questions 8.Expect a rise in FLSA lawsuits/class actions

3. The Basics Terminology Non-exempt employees: Meaning, not exempt from getting overtime. The Fair Labor Standards Act (FLSA) establishes that Non-exempt employees are entitled to overtime pay for all hours worked over 40 hours in a workweek. (1 ½ times their hourly rate for any hours over 40 hours worked). DOL’s Proposed new terminology: “Overtime Protected” or “Overtime Eligible” Exempt employees: Meaning, exempt from getting overtime. DOL proposed new terminology: “Not Overtime Protected” or “Overtime Ineligible”

4. How the Overtime Rules work Today….. FLSA establishes that workers are generally entitled to overtime pay unless they qualify for an exemption. FLSA sets three statutory requirements to be considered exempt from overtime under the white collar exemption 1.They be paid on a salary basis; paid at a pre-determined fixed salary. 2.Salary level test: Must meet minimum specified amount- Currently at $455/week, $23,660 per year. If they don’t meet this test alone, STOP, they cannot be a salaried employee. They are entitled to overtime. 3.Duties Test: Must primary involve Executive, Administrative or Professional duties. This is not changing. Google: “Wage and Hour Division overtime fact sheets”

5. Current vs. New Changes to the OT Rules by the US Department of Labor Current Must earn $455/wk ($23,660/yr) This salary is fixed until rule is revised Must pass duties and salary test New Must earn $913/wk ($47,476/yr) This salary level is adjusted every 3 years based on 40 th percentile of FT salaried employees in the lowest- wage region. Duties test remains as is

6. Suggestions, Best Practices, Thoughts 1.Gather your employee data. Develop a list of all your salaried employees from highest to lowest. Analyze who is above the $47,476 and who is below. 2.Identify positions that need to be reclassified. 3.For those that are below, analyze what it would cost to push their salary over the threshold. Look for justification as you compare duties, responsibilities and equality to other employees. 4.Ideally, you would have been having them complete time sheets for the last several months to decipher how many hours these salaried employees work per week and how much overtime they traditionally work (over 40 hours). If not, take the time now to do this exercise.

7. Suggestions, Best Practices, Thoughts 5.Educate those that need to know. Pastors, Boards (if applicable), finance council, Principals, payroll administrators, key management personnel. 6.Develop options for compliance. (See later slide entitled “Options U.S. Employers are Considering) 7.Develop a face-to-face group meeting with all those affected (salaried staff). 8.Address time, record-keeping systems. Is your parish ready for electronic time system? 9.Revise job descriptions 10.If you need any legal opinions, contact Human Resources and we can determine if we need to contact Frank Harty or work through it ourselves.

8. Options U.S. Employers are Considering 1.Increase the salaries of employees near the threshold to tip them over it, and keep them salaried. However, some are considering reducing other benefits as a trade off to compensate or increasing their hours or responsibilities. We could not do this because of our grandfathered status. 2.Convert salaried employees to an hourly rate, set at a level that accounts for the overtime that was previously exempt. 3.Reduce the hours of those converted to hourly and hire part- time employees to fill in the operational gaps or loss in productivity; invest in technology. 4.Establish a detailed flextime policy, to deflect or mitigate the potential overtime. TIP: Flextime is not intended for all employees.

9. Options U.S. Employers are Considering 5.Treat the employee as “overtime eligible” and continue to pay them on a salary basis but have them complete a timesheet or timecard each week, knowing that if they work over 40 hours in a workweek, you must convert their salary over to hourly and pay them the overtime they worked. Don’t forget about employees you pay salary for less than 40 hours, they still need to get paid for hours worked over what you calculate the salary upon. Caution ! This option is not right for everyone. A good candidate is someone who consistently works well under 40 hours (never goes over 40 hours). They still must meet the duties test and they MUST complete a time sheet/timecard so that if you are audited by the DOL or some other government agency, you can show that you kept careful record of their hours and if they ever did work overtime, they were paid overtime.

10. Implications in carrying out these options 1.Less freedom or flexibility to carry out their ministry. It’s not in our Catholic DNA to think this way. Many of us chose this work to focus on mission, not to worry about the time and hard work it takes to accomplish it. 2.The feelings of being time-clock mandated, closely monitored and being demoted. 3.Policies and benefits may need to be rewritten because exempt employees may get a different benefit than non-exempt such as time off 4.Increased workforce costs 5.Justification, feelings, and perceptions from others when certain employees receive an increase in pay to maintain their exempt status.

11. Caution: Here is a common thought that is ILLEGAL! “I will have a policy that states that no overtime is permitted. Furthermore, if anyone works overtime, they will not be paid overtime because our policy forbids it” This is ILLEGAL! If an employee works overtime, authorized or not, policy or no policy, or banning the working of overtime, IF THEY WORK OVERTIME, YOU MUST UNDER THE ACT, PAY THEM OVERTIME. Q: So how do I stop the overtime? A: Discipline them. Formal Written Warning

12. Things to think about….. 1.Do you currently have salaried employees, that will soon be hourly, that checks their emails, voicemails, and takes work calls after hours and weekends? Do they work remotely from home after the normal workday or on the weekends? Do they get to work early and start working before the official start time? Do they work through their unpaid lunch hour sometimes? Department of Labor News flash: This may compensable time and they should record this time on their time sheets or time cards. Currently, the FLSA does say that “de minimis” work (typically five minutes or less) performed beyond the 40-hour workweek by non-exempt employees is not compensable. However, the DOL has this on their agenda to re-examine this.

13. Things to think about….. 2.Expect and know how to respond to comments from these employees that say: “Oh, I’m volunteering my time, you don’t need to pay me for the project I worked on after hours. It’s a ministry, it’s for the Church.” Department of Labor News Flash: This is compensable time. This statement does not hold up. You can’t volunteer for your own job! We are obligated to pay; now or later when this disgruntled employee files a claim with the DOL with meticulous records of unpaid hours. 3. Do we rethink who will have access to VPN and remote access? Are there policies that need to be written? ie. Off-the Clock Policy

14. Department of Labor – Personal Criminal Liability Department of Justice (DOJ) - “ Individual Accountability for Corporate Wrongdoing”

15. Common Question Are teachers and principals still exempt, regardless of salary amount? Yes, teachers and academic administrative employees (e.g., counselors, assistant principals, principals, curriculum specialists, and instructional coaches) will remain exempted from the salary level test (29 C.F.R. §541.303).

16. These are only federal, not counting state court cases. 2016-2017 estimates will be off the charts after this new rule takes affect.

17. U.S. Department of Labor’s, New Overtime Rules Implications of Increased Overtime Exemption Thresholds Thank you for Attending