1. And what they mean for your business . . .
New FLSA Salary Rules
And what they mean for your business . . .

2. “White Collar” Exemption
Increase to the minimum salary requirement or threshold for the overtime exemption applicable to executive, administrative and professional employees

3. New minimum weekly salary
Now
Starting December 1st
At least $455 per week
$23,660 annually
No automatic increases
At least $913 per week
$47,476 annually
Amount resets on January 1, 2020 and every 3 years thereafter

4. Highly Compensated Employee Exception
Threshold to qualify for this exemption increased from $100,000 annually to $134,004 annually
Has to also customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee
Probably not of a lot of impact because most employees who are paid this much already satisfy all the duties tests for executive, administrative or professional

5. Minimum Salary Test only applies to White Collar Exemptions
Dozens of other exemptions from overtime rules that are not impacted one iota by these changes
Teachers, elected officials, employees of seasonal amusement of recreational facilities, lawyers and doctors, small police departments, etc.
None of these exemptions are effected by the new rules
e.g. new lawyer hired at my firm at $40,000 would still not be eligible for overtime because lawyers are exempt from overtime under different regulations
Minimum Salary Test only applies to White Collar Exemptions
Executive
Administrative
Professionals

6. Minimum Salary Test only applies to White Collar Exemptions
By the same token . . .
Employee must satisfy the duties test and the salary test to qualify for the overtime exception
A custodian or employee working on the assembly line whose paid an annual salary of $60,000 is still eligible for overtime
Salary test is satisfied . . .
But the duties test isn’t
Minimum Salary Test only applies to White Collar Exemptions
Executive
Administrative
Professionals

7. Executive Exemption – Duties Test
Primary duty = managing the enterprise in which the employee is employed
Or managing a recognized department or subdivision of the enterprise
Must regularly direct the work of at least two or more other full-time employees or their equivalent
Oversees 1 full time and two part time employees
Must have the authority to hire or fire other employees
Or the employee’s suggestions and recommendations on hiring, firing, promotions, etc. must be given particular weight

8. Administrative Exemption – Duties Test
Primary duty = performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers
Areas related to management or business operations include: advertising, safety, human resources, accounting, IT
Must include the exercise of discretion and independent judgment with respect to matters of significance

9. Professional Exemption – Duties Test
Learned Professionals
Primary duty = performance of work requiring advanced knowledge
Work that is primarily intellectual in nature, requiring consistent exercise of discretion and judgment
Advanced knowledge must be in field of science or learning with recognized professional status
Law, theology, architecture, pharmacy, chemistry
As opposed to mechanical arts or skilled trades (jet engine mechanic, HVAC)
Advanced knowledge acquired through prolonged course of specialized intellectual instruction as prerequisite to entering the profession

10. New minimum weekly salary
Now
Starting December 1st
At least $455 per week
$23,660 annually
No automatic increases
At least $913 per week
$47,476 annually
Amount resets on January 1, 2020 and every 3 years thereafter

11. Where did they get these numbers from?

12. History of the “Salary Test”
FLSA originally adopted in 1938 (part of FDR’s New Deal)
“Salary Test” for Executive, Administrative and Professionals has been part of regulations since adoption
These changes mark the 8th time since 1938 that the salary levels have been adjusted
Most recent change was in 2004 and also made lots of other changes including to the standards for the “duties tests”
Prior to 2004, the last time salary threshold was changed was in 1975

13. Setting the new level
Original rule proposed to set the amount at $970 per week ($50,440 annually)
40th percentile of full-time salaried workers nationally
Lots of criticism and comment
$970 per week in Terre Haute is different than $970 a week in San Francisco or even in Indianapolis
Final Regulation reduced amount to $913 per week ($47,476 annually)
40th percentile of full-time salaried workers in the southern U.S.
Lowest wage region in the country
Projected to affect 4.2 million workers nationwide; 86,000 in Indiana

14. Salary requirements
What is the meaning of “salary”?

15. Salary rules
Employee must regularly receive a predetermined amount of compensation each pay period
Compensation can’t be reduced because of variations in the quality or quantity of work performed
Generally, employee must receive full salary for any week in which the employee performs any work
Exceptions when deductions from salary are allowed
Absence from work for full day(s) for reasons or than sickness or disability
Unpaid disciplinary suspensions
To offset amounts received as payment for jury fees, witness fees or military pay

16. Following Salary Rules is Important
Effect of an Improper Deduction
Employer risks loses the exemption for the employee or all employees at same classification or working for same manager
Potentially significant impact
Some allowance for “isolated” or “inadvertent” deductions
“Safe Harbor” exists and exemption won’t be lost if:
Employer has “clearly communicated” policy prohibiting improper deductions, including a complaint procedure
Reimburses employees for improper deductions
Makes a good faith effort to prevent mistakes in the future

17. How to comply with new rules
Employer’s options for responding to new salary levels

18. Raise salaries
Marketing director meets duties test for administrative exemption but only makes $45,000 a year in salary
Increase her salary to at least $47,476 per year (starting December 1st)
Maintains current exemption
Will increase employer’s costs
Easier to change for employee making $45,000 than employee making $35,000

19. Strictly limit to 40 hours per week
Marketing Director making $35,000 per year
Set a fixed work schedule of 40 hours or less with no overtime without express authorization
Costs to employer should stay same (maybe some increase for authorized overtime)
But may result in less work production from employee
And limiting hours can be difficult for many positions
Need to record time of employee because he/she is no longer exempt from overtime

20. Keep salary same but pay overtime
Continue to pay employee his/her salary, but pay overtime if they work over 40 hours
Employees can receive salary and still be paid overtime
For every hour worked over 40, employee is paid 1.5 times his/her hourly rate (weekly salary divided by 40 hours)
Employee paid $800 per week; hourly rate is $20 per hour; overtime rate $30 per hour
41 hour work week = $830 in pay to employee
But hour week still means $800 in salary
Probably good if you have few employees who work few overtime hours
But could also be very expensive

21. Convert salaried employees to hourly pay
Employee making $800 weekly salary is changed to a $20 per hour employee
If he/she works 41 hours, earn $830
But work 38 hours = $760 in pay
Costs of this option would be less to employer if employee sometimes works less than 40 hours per week
Employees may not like
Paychecks could be less some weeks
Perceived demotion

22. Reduce employee’s salary or hourly rates
If employee is expected to regularly work a fairly predictable number of overtime hours . . .
Salary could be reduced (or hourly rate adjusted) so that, with overtime, employee’s compensation stays similar to its current level
Employee currently making $40,000 salary for 50 hours a week
Salary reduced from $ per week to $ per week ($22,384 annual)
With overtime, at 50 hours per week, employee will still make $40k per year
Could also set employee’s hourly pay to $13.99 per hour
Math is hard, predictions could be off, employee moral

23. Fixed Salary for over 40 hours
Under some circumstances, not required to pay 1.5 times hourly rate for over 40 hours
Employer designates in writing that employee’s salary $ per week ($40,000) annually, is intended to be for 50 hours per week
For hours employee does receive extra compensation . . .
But only ½ time rate ($7.69 per hour)
$769.23/50 =$15.38; $15.38/2 = $7.69
Because salary is intended to cover employee’s “flat rate” to 50 hours
The 1 in the 1.5 is already covered, so all that is owed is the .5
If employee works over 50 hours, then he/she owed 1.5 regular rate ($23.07)
$769.23/50 = $15.38; $15.38 x 1.5 = $23.07
If employee works 25 hours, still receive regular salary

24. Fluctuating Work Week
Employee receives fixed salary per week regardless of hours worked
If employee works over 40 hours, he/she gets ½ time for overtime hours
½ time rate is based on number of hours employee worked that week
Employee is paid weekly salary of $800 and works 60 hours
Overtime rate is $800/60 = $13.33 x .5 = $6.66
Employee’s pay for week is calculated by:
Take weekly salary $800
Add 20 hours x $6.66 ($133.20) = $933.20
Complicated because rate changes weekly based on hours worked
Should be confirmed in written understanding with employee

25. More Info? https://www.dol.gov/whd/overtime/final2016/ Scott Craig
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