1. Outline: Webinar Topics
White Collar Exemption Overview
Overtime Final Rule Overview
Final Rule Updates (Changes)
Standard Salary Level
Highly Compensated Employee (HCE) Annual Compensation Level
Non-Discretionary Bonuses
Automatic Updates
Final Rule Non-Changes
Today’s Webinar Topics will include:
White Collar Exemption Overview
Overtime Final Rule Overview
Changes related to the new Part 541 Final Rule with subsection topics including -
The Standard Salary Level
Highly Compensated Employee (HCE) Annual Compensation Level
Inclusion of Non-Discretionary Bonuses, and
The Mechanism for Automatic Updates
Finally, we will discuss the areas of that were not changed in the Final Rule.

2. Exemptions and Exceptions
There are numerous exemptions and exceptions from the minimum wage and/or overtime standards of the FLSA
The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. However, there are numerous exemptions and exceptions from the minimum wage and/or overtime standards of the FLSA.

3. “White Collar” Exemptions
Namely, what's called the “White Collar” Exemptions.

4. “White Collar” Exemptions
The most common FLSA minimum wage and overtime exemption -- often called the “EAP” or “white collar” exemption -- applies to certain:
Executive Employees
Administrative Employees
Professional Employees
Section 13(a)(1) of the FLSA provides the most common minimum wage and overtime exemption often called -- the “white collar” or “EAP” exemption that applies to employees employed as bona fide Executive, Administrative , and Professional.

5. Three Tests for Exemption
Salary Basis
Salary Level
Job Duties
There are three tests that the Department has long held must be met for the exemption to apply and are unchanged. The employee still must be must be paid on a salary basis, must be paid a certain salary level, and must perform certain job duties.

6. New Overtime Rule Overview
March Presidential Memorandum
July 2015 – Notice of Proposed Rulemaking
May 23, 2016 – Final Rule Published
December 1, 2016 – Final Rule Effective Date
In March of 2014, President Obama signed a Presidential Memorandum directing the Department of Labor to update the regulations defining which “white collar” workers are protected by the FLSA’s minimum wage and overtime standards. Specifically, the Department was instructed to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
In July of 2015, the Department issued its Notice of Proposed Rulemaking (NPRM) which received over 270,000 comments, and the Final Rule was published on [May 23, 2016] with an effective date of December 1, 2016.

7. New Overtime Rule Changes
Salary Level Increases
Nondiscretionary Bonuses
Automatic Updates
This portion of the presentation explains the changes in the Final Rule. The Final Rule updates the standard salary level and the total annual compensation required for the exemption of highly compensated employees (or HCEs). It also allows employers to include nondiscretionary bonuses (including commissions) to satisfy a portion of the standard salary level (but not the Highly Compensated Employees Annual Compensation Level). Finally, it automatically updates the standard salary level and highly compensated employee annual compensation level every three years.

8. New Overtime Rule Standard Salary Level and Highly Compensated Employees
Standard salary level - pursuant to 29 CFR
Current Effective 12/1/2016
$ $913 per week
Highly Compensated Employee (HCE) - pursuant to 29 CFR
Current Effective 12/1/2016
$100, $134,004 per annum
Under the new rule, bona fide exempt “White Collar” or “EAP” employees, who are currently required to be paid on a salary basis a minimum of $455 per week, must be compensated on a salary basis at a rate of not less than $913 per week, which is based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).
The highly compensated employee total annual compensation level has been increased from $100,000 to $134,004 annually, and is based on the annualized earnings of the 90th percentile of full-time salaried workers nationally.

9. New Overtime Rule Special Salary Levels
American Samoa – pursuant to 29 CFR
Current Effective 12/1/2016
$ $767 per week
Motion Picture industry - pursuant to 29 CFR
$ $1397 per week
If employed in American Samoa by employers other than the Federal government, the current requirement of $380 will be increased to $767, which is 84 percent of the standard salary amount.
Lastly, the Motion picture producing industry base rate has been increased from $695 to $1397 per week. We will talk a little more about the methodologies used to set those salary requirements later in the presentation.
Now I’m going to talk about the changes in the rule regarding bonuses.

10. New Overtime Rule Nondiscretionary Bonuses
Nondiscretionary bonuses and incentive payments (including commissions) are forms of compensation promised in advance to employees (e.g., bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula).
May be used to satisfy up to 10% of the standard salary level.
Minimum of 90% (approx. $822) of standard salary level must be paid as a weekly salary.
Payments must be paid on a quarterly or more frequent basis.
There are two types of bonuses: Discretionary and nondiscretionary.
Discretionary bonuses are generally paid without prior contract, promise, or announcement, and the decision whether to make a payment, and the payment amount is at the employer’s sole discretion. An example will be an “on-the-spot” award made without prior announcement and at the employer’s sole discretion (e.g., an unannounced year-end or Christmas bonus). Discretionary bonuses can be paid to exempt EAP employees, but cannot be used to satisfy any portion of the standard salary level.
Nondiscretionary bonuses, commissions and incentive payments are forms of compensation promised in advance to employees, typically to induce them to work more efficiently or to remain with the company. They can be in the form of individual or group production bonuses, retention bonuses, and bonuses for quality or accuracy of work. Commission payments based on a fixed formula are also nondiscretionary.
Under the new rule, nondiscretionary bonuses, incentives, and/or commissions paid quarterly or more frequently, may be used to satisfy up to 10% of the standard salary level.
Please Note: Approximately $ (90% of the standard salary level) is the minimum amount that an exempt employee must receive as a weekly salary. Moreover, any bonus, or commission, for example, used to satisfy the remaining 10% must be paid no less frequently than on a quarterly basis.
The Department recognizes that some businesses pay significantly larger bonuses; where larger bonuses are paid, however, the amount that may be counted toward the standard salary level is capped at 10 percent of the required salary amount.

11. New Overtime Rule Catch-up Payments
If an employee does not earn enough from the nondiscretionary bonus, commission, or incentive payment in a given quarter to meet the standard salary level – an employer may make a “catch-up” payment within one pay period of the end of the quarter. 
Any such “catch-up” payment will count only toward the prior quarter’s salary amount and not toward the salary amount in the quarter in which it is paid. 
Under the new rule, if by the last pay period of the quarter the sum of the employee’s weekly salary plus nondiscretionary bonus, incentive, and/or commission payments received does not equal 13 times the weekly salary amount required by § , the employer may make one final catch-up payment sufficient to achieve the required level no later than the next pay period after the end of the quarter. If the employer does not make a catch-up payment, the employee would be due overtime payments for any overtime hours worked during the quarter.
An employer has one pay period to make up for the shortfall.

12. New Overtime Rule Example - Year 2017
Qtr 1: Jan thru Mar - $822/wk + $2000 bonus
Qtr 2: Apr thru Jun - $822/wk + $600 bonus
Qtr 3: Jul thru Sep - $822/wk + $2000 bonus
Qtr 4: Oct thru Dec - $822/wk + $500 bonus
(+$683 catch-up payment – 1st pay period in Jan)
This slide contains payment information for four quarters in 2017 that will enable us to walk through an application of the new rule.
In Quarter 1, the employee was paid $822 per week which is approximately 90% of the salary level required. In addition the employee received a $2000 nondiscretionary bonus at the end of that quarter, which is more than the $1183 necessary to reach the salary level for the 13-week quarter. Therefore, the employee meets the required salary level for Quarter 1.
In Quarter 2, the employee was paid $822 per week as well, however the employee only received a $600 nondiscretionary bonus at the end of that quarter. As established in Quarter 1, because this worker received $822 per week, her bonus would have to be a minimum of $1183 to meet the standard salary level for the quarter. Adding the $600 nondiscretionary bonus is not sufficient as it is $583 short of the amount needed to meet the required salary level for the quarter. Therefore, the employee would be considered nonexempt for this quarter because the employee did not meet the required salary level, and overtime payments would be due for any week in this quarter in which the employee worked more than 40 hours.
In Quarter 3, just like Quarter 1, the employee was still paid $822 per week and received a $2000 bonus. Therefore, the employee is exempt for Quarter 3.
In Quarter 4, the employee was paid $822 per week, however at the end of this quarter the employee only received a $500 bonus. As previously established, this employee’s bonus would have to be a minimum of $1183 to meet the standard salary level for the quarter. Adding the $500 bonus leaves $683 remaining due in order to meet the standard salary level. However, the employer made a "catch-up payment" of $683 in the first pay period following Quarter 4. Therefore, the employee meets the required salary level for the 4th quarter as well.

13. New Overtime Rule Highly Compensated Employees (HCE)
HCEs must continue to receive at least the full standard salary level amount each pay period on a salary or fee basis without regard to the payment of nondiscretionary bonuses and incentive payments. (No Change to this principle)
Nondiscretionary bonuses and incentive payments (including commissions) may be counted towards the highly compensated employees’ total annual compensation requirement. (No Change to this principle)
The HCE test does not allow employers to credit nondiscretionary bonuses or incentive payments (including commissions) towards the standard salary level weekly requirement.
Highly Compensated Employees must still receive, at minimum, the full standard salary level on a weekly basis, without regard to the payment of nondiscretionary bonuses and incentive payments. This has not changed. While the full standard salary level must be paid on a salary basis, the remainder of the total annual compensation requirement may still be made up of nondiscretionary bonuses, incentive payments, and commissions. This requirement will still apply when the standard salary level is updated in future years pursuant to section
Nondiscretionary bonuses and incentive payments (including commissions) may still be counted towards the highly compensated employees’ total annual compensation requirement. This also has not changed.
The change made to the HCE exemption is the increase in the total annual compensation level from $100,000 to $134,004 per year. HCEs must still receive at least the full standard salary level amount, which effective 12/1/16 will be $913 per week. They may not be paid 90% of this level. That change is only applicable to the standard EAP exemptions (described in through .400).

14. New Overtime Rule Automatic Updates
Every three years beginning January 1, the standard salary and annual compensation levels will be automatically updated.
At least 150 days before the effective date, the Secretary will publish a notice in the Federal Register of the updated salary and total annual compensation amounts that will be required.
The new rule includes an automatic updating mechanism, and beginning January 1, 2020, and every three years thereafter, the standard salary level as well as the special salary levels and the HCE total annual compensation requirement will be automatically updated. Automatically updating the salary and compensation levels on a regular basis will ensure that they continue to work effectively with the standard and HCE duties test to distinguish between employees entitled to overtime compensation and those who are bona fide exempt employees.
As indicated on the slide, the Secretary will publish a notice of the updated amounts in the Federal Register at least 150 days before the effective date. In addition, the Wage and Hour Division will publish and maintain on its website the applicable salary and compensation levels for all affected categories.

15. New Overtime Rule Updating the Standard Salary Level
Standard salary level – updated to equal the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.
Beginning January 1, 2020, and every three years thereafter, the standard salary level will be updated based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South) in the second quarter of the year preceding the update as published by the Bureau of Labor Statistics.

16. New Overtime Rule Updating Special Salary Levels
American Samoa – updated to maintain the ratio to the standard salary level at 84 percent
Motion picture producing industry – updated by increasing the base rate proportionately to the change in the standard salary level.
For American Samoa, the salary levels will be updated every three years as well to maintain the ratio to the standard salary level at 84 percent rounded to the nearest dollar, until the highest industry minimum wage for American Samoa equals the statutory minimum wage. 29 U.S.C. 206(a)(1).
In addition, beginning January 1, 2020, and every three years thereafter, the previously applicable base rate for the motion picture producing industry will be adjusted by the same percentage as the preceding standard salary level is changed. So, if the standard salary level is increased by 10%, the motion picture producing industry base rate amount will be increased by 10% as well.

17. New Overtime Rule Updating HCE Compensation Level
Highly compensated employees – updated to equal the 90th percentile of annualized earnings of full-time salaried workers nationally.
Also beginning on January 1, 2020, and every three years thereafter, the Highly Compensated Employee total annual compensation level will be updated to correspond to the annualized earnings amount of the 90th percentile of full-time salaried workers nationally in the second quarter of the preceding year as published by the Bureau of Labor Statistics.
As indicated previously, the Secretary will publish a notice of the updated amounts in the Federal Register at least 150 days before the effective date. In addition, the Wage and Hour Division will publish and maintain on its website the applicable salary and compensation levels for all affected categories.

18. Salary Basis Test
Regularly receives a predetermined amount of compensation each pay period (on a weekly or less frequent basis)
The compensation cannot be reduced because of variations in the quality or quantity of the work performed
If employer chooses to use nondiscretionary bonuses and incentive payments to meet the standard salary level, the employee must be paid at least 90% of the standard salary level for any week in which the employee performs any work
Need not be paid for any workweek when no work is performed
To meet the salary basis test, an employee must regularly receive a predetermined amount of compensation each pay period and that compensation cannot be reduced because of variations in the quality or quantity of work (although the employee doesn’t have to be paid for weeks in which no work is performed). In general, the salary basis test requires that the employees must be paid the full salary for any week in which the employee performs any work.
However, as previously discussed, the new rule allows up to 10% of the standard salary requirement to be satisfied by the payment of nondiscretionary bonuses paid on a quarterly or more frequent basis. For employers who choose this option, the employee must be paid at least 90% of the standard salary level for any week in which the employee performs work, provided that the additional 10% owed is made up by payment of nondiscretionary bonuses or incentive payments (including commissions) paid on a quarterly or more frequent basis.
Note that employees exempt under the Administrative and Professional exemptions also may be paid on a fee basis. The Final Rule did not make any changes to the fee basis requirements, and when we refer to payment on a salary basis, we also include fee basis payments.

19. Deductions From Salary
An employee is not paid on a salary basis if deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the business
If the employee is ready, willing and able to work, deductions may not be made for time when work is not available
In this segment of the presentation I’ll discuss some of the provisions of the 541 regulations which the Final Rule did not change. These include: allowable and impermissible Salary deductions; the occupations that are not subject to the salary level AND the job duties tests.
Sirena just discussed the requirements of the salary basis test. However, the Final Rule did not make any changes to the rules regarding deductions from salary. Therefore, I’ll provide you with a brief refresher regarding allowable and impermissible salary deductions.
As many of you are already aware, employers may not make deductions from bona fide salaried employees for absences that are caused by business related matters beyond their control.
Furthermore, the regulations contain seven exceptions to the salary basis rule. These exceptions permit employers to make deductions from the salaries of exempt employees, but only under certain circumstances.
For example, it is permissible for employers to make deductions from salaried employees who absent themselves from work for one or more full days for personal reasons other than sickness or disability.

20. No Salary Requirements
The salary level and salary basis tests do not apply to:
Outside Sales Employees
Doctors
Lawyers
Teachers
Employees in certain computer-related occupations paid at least $27.63 per hour
There are certain occupations that have no salary requirements for employees to qualify for exemption.
For instance, the salary level and salary basis requirements described in this segment do not apply to outside sales employees, licensed or certified doctors, lawyers and teachers.
Employees in these occupations are exempt, regardless of their salary.
In addition, Section 13(a)(17) of the FLSA exempts hourly paid employees in certain computer-related occupations if they are paid at least $27.63 per hour. I’ll discuss this in greater detail later in the presentation.
Furthermore, academic administrative personnel employed by an educational establishment may qualify for exemption if they receive payment on a salary basis that is at least equal to the entrance salary for teachers in that educational establishment.

21. New Overtime Rule No Changes
The Final Rule did not make any changes to the Duties Tests
As the slide aptly states, the new overtime rule does not impose any new changes to the duties test.
Although we inquired, in the Notice of Proposed Rulemaking as to what , if any, changes should be made to the duties tests, the Final Rule did not make any changes to the job duties tests.
   
Let’s move on to the duties tests.

22. Executive Duties
Primary duty is management of the enterprise or of a customarily recognized department or subdivision
Customarily and regularly directs the work of two or more other employees
Authority to hire or fire other employees or recommendations as to the hiring, firing, advancement, promotion or other change of status of other employees given particular weight
With the exception of some white collar employees working in the computer field, all other qualifying employees, regardless of the specific exemption applicable to their occupation, must be paid the required salary amount and must also meet the respective duties tests for coverage.
Exempt employees must perform Executive, Administrative or Professional duties as set forth in the regulations.
In this segment we’ll briefly review the duties and/or requirements for those exemptions.
Please keep in mind that each particular exemption contains specific clarifying terms which are defined in the regulations.
In the interest of time, this segment will not define the respective terms associated with each particular exemption; however, later in the presentation you’ll be provided with pertinent resources for your review and reference.
Let’s begin with the duties required for the Executive Exemption:
This exemption is applicable only if the following requirements are met:
1) The employee’s primary duty must be management;
2) The employee must customarily and regularly direct the work of at least two full time employees or the equivalent thereof; AND
3) The employee must have either the direct authority OR the ability to contribute significant input toward personnel actions such as employing, terminating and advancing the careers of other employees.

23. Administrative Duties
Primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers
Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance
The Administrative Duties Exemption applies only if:
The employee’s primary duty is the performance of non-manual office work that is directly related to management or general business operations AND
The employee’s primary duty provides him/her with the autonomy to exercise discretion and independent judgment regarding significant matters.

24. Professional Duties
Primary duty is the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction OR
Primary duty is the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor
Next, I’ll review the Professional Duties Exemption.
There are 2 general types of professional exemptions:
One is applicable to employees who are learned professionals and the other is applicable to those employees who are creative professionals such as artists, writers, actors, musicians and composers.
However, the content of this slide is focused on the learned professional exemption.
There are distinct differences between those occupations in which the learned exemption is either applicable or inapplicable.
In addition to the salary requirements discussed previously, the learned professional exemption would be applicable to occupations in which the employees’ primary duties call for engagement in work requiring either:
Advanced knowledge in a field of science, OR knowledge acquired in academia over a prolonged course of specialized intellectual studies.
In contrast, work that involves routine, manual, mechanical or physical duties is not considered to be work requiring advanced knowledge.
However, the learned professional exemption would not be applicable to occupations that may be performed with only general knowledge acquired by:
An academic degree in any field; knowledge acquired through an apprenticeship; OR
training in the performance of routine manual, mechanical or physical processes.
Likewise, this exemption does not apply to occupations in which most employees acquire skill by experience.

25. Computer Related Occupations
To qualify for the computer employee exemption the
employee must receive either:
A guaranteed salary or fee of $913 per week or more, or
An hourly rate of not less than $27.63 per hour and
Must be employed as an analyst, computer programmer, software engineer or other similarly skilled and
The primary duty must be in design, development, creations, systems analysis etc. (as defined in the regulations).
The computer employee exemption is applicable to computer systems analysts, programmers, software engineers, and other similarly skilled workers in the computer field who meet certain tests regarding their job duties.
As stated earlier, these employees must either be paid a guaranteed salary of at least $ per week, OR an hourly rate of not less than $27.63 per hour.
In addition, the employee’s primary duty must consist of the following:
The application of systems analysis techniques and procedures; The design, analysis, testing, or modification of computer systems and/or programs; The creation, testing, or revision of computer programs related to machine operating systems OR a combination of the duties described above.
However, the computer employee exemption DOES NOT APPLY to:
Employees who are engaged in the manufacturing or repair of computer hardware and/or related equipment.
Furthermore, it does not apply to those employees who are not primarily engaged in programming, computer analysis or similarly skilled computer-related occupations but whose work is dependent upon the use of computers and computer software programs.

26. Outside Sales Primary duty is Making sales or
Obtaining orders or contracts for services or facilities for consideration paid by customer and
Customarily and regularly engaged away from the employer’s place(s) of business in performing such primary duty
No compensation test
As mentioned earlier, the salary requirements of the regulation do not apply to the Outside Sales Exemption.
However, an employee who does not satisfy the requirements of the outside sales exemption may still qualify as an exempt employee under one of the other exemptions allowed by Section 13(a)(1) of the FLSA providing the following criteria is met:
The employee’s primary duty must be making sales, OR obtaining fee-based contracts for either services or for the use of facilities.
AND
The employee must be customarily and regularly engaged in work AWAY from his/her physical place of employment.
This concludes our discussion of some of the provisions that were not changed by the Final Rule.

27. Non-Enforcement Policy
Time-limited non-enforcement policy though March 17, 2019
Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds (Group Homes)
The 541 standard salary level remains at a minimum of $455 weekly
CAUTION!!! Please use discretion when presenting this slide- This slide is not appropriate for every employer or stakeholder. Non-Profit or similarly situated organization may not benefit from this slide. However, someone like ANCOR or others might find this slide helpful and informative.
This Non-Enforcement Policy extends only to providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds.  Commonly known as “Group Homes”. Under this policy, from December 1, 2016, to March 17, 2019, the Department will not enforce the updated salary threshold of $913 per week for this subset of employers. 
During the non-enforcement period, we will not bring enforcement actions against these facilities for their failure to pay minimum wage or overtime to an employee who is paid on a salary basis of not less than $455 per week, and who performs the duties of an exempt executive, administrative, or professional employee.  During this non-enforcement period, however, the Department will enforce the salary threshold that had been applicable under the 2004 Overtime Rule and will enforce all other provisions of the Overtime Final Rule and the Fair Labor Standards Act regarding these employers.
We are issuing this non-enforcement policy as DOL has engaged in extensive discussion with the Department of Health and Human Services, and based on these discussions, we believe that providers covered by this non-enforcement policy face a unique combination of challenges. Their goal has been to shift care of individuals with intellectual or developmental disabilities to small community-based settings while also meeting the timeline for implementing an HHS rule impacting home and community-based service providers. These settings are small, dependent on Medicaid funding in state budgets, and serve vulnerable populations. Providing this subset of providers of Medicaid-funded services additional time to transition and seek technical assistance on the Overtime Final Rule without being subject to enforcement of the new salary threshold may mitigate some of these challenges and concerns.
During the period covered by the non-enforcement policy, we will engage in outreach and technical assistance efforts, including to providers of services in settings covered by this policy.
Please note: The non-enforcement policy only applies to providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds with respect to the revised salary level (of at least $913 per week as of 12/1/2016) set in the Overtime Final Rule.  It does not apply to any other alleged FLSA violations by these providers. This includes employees paid on other than a salary basis, employees who do not meet the duties test for the exemption, or employees paid on a salary basis of less than $455 per week for whom the employer claims the white collar exemption.
Also note: This non-enforcement policy is about what the Department will do going forward - not any private litigant.  The policy does not affect the right of private individuals to bring an action under the FLSA for violations of the Overtime Final Rule.
When enforcement begins, the Department will not seek back wages for alleged violations of the revised salary threshold of $913 per week occurring before March 17, 2019.

28. Additional Information
Other resources include:
New Overtime Rule
Guidance Documents
Fact Sheets
Frequently Asked Questions
Call or visit the nearest WHD Office
Visit the WHD homepage at:
Call the WHD toll-free information and helpline at: US-WAGE ( )
This concludes the webinar about updates to the new Part 541 Final Rule. For additional information on the Final Rule and other FLSA provisions you may wish to access our new 541 homepage. There you will find the New Overtime Rule, Guidance Documents, Fact Sheets, and Frequently Asked Questions related to the FLSA principles and various topics addressed in this webinar or you may call the toll free number at for assistance.
Thank you for your participation today!