1. FLSA – Reviewing Your Employee Classifications and How New Regulations May Impact Your Practice

2. Topics Wage and Hour Division (WHD) enforcement
Exemption problems and challenges
Proposed regulatory changes
Affected employees
Impacts of the changes
When a rule might appear
Preparing for the changes

3. Why Review Classifications
Anticipation of extra enforcement
Wrongful classification can be costly
Failing to count hours or compensation
2015 WHD collected $246 million
Good faith error
Back pay for two years
Willful violation (lacking good faith)
Three years back pay, plus
Equal amount in damages, plus

4. Exempt Classifications
Executive – applied to supervisors and managers
Administrative – for employees with substantial amount of authority and discretion
Learned Professional – covering employees who analyze facts and draw conclusions
Creative Professional – actors, musicians,etc
Computer employees – programmers, developers
Outside sales – employees who spend most time traveling

5. Exemption challenges Common challenges to exempt status
Executive: Decision-making authority as to hiring, firing, and otherwise running a department
Administrative: Discretion and independent judgment on matters of significance

6. Exemption challenges Common challenges to exempt status
Learned Professional: Educational requirements
Computer Employee: Not designing/creating systems
Outside Sales: What counts as sales

7. Proposed salary increase Proposed rule July 6, 2015
Minimum salary to double from $455 to $970/week
This would be equal to $50,440 per year
Annual increases based on the 40th percentile or the Consumer Price Index (CPI, or inflation rate)

8. Highly compensated employees
Employees earning $100,000 per year may be exempt with less focus on duties
Proposed: Increase to $122,148 per year
90th percentile
May increase annually
Highly
compensated
employees

9. Proposed Changes: When? Reviewing 260,000+ comments
When will the final rule be published and effective?
Regulatory agenda estimates July 2016
Could be later, could be sooner
Solicitor of Labor Smith said “later” in 2016
Secretary of Labor Perez said “spring” of 2016
Effective date could be 60 days after publication

10. Reasoning is that old (pre-2004) rule had:
Two salary levels (low and high)
Two duties tests (short and long)
Higher salary had less stringent duties tests
Low salary had longer duties tests

11. Employees affected
Would affect only executive, administrative, and professional (EAP) exemptions (white collar)
Not affecting outside sales, hourly computer employees, teachers, lawyers, doctors, interstate drivers, commissioned sales employees, etc.

12. DOL estimates 21.4 million EAP exemptions
Of which 4.6 million below the proposed salary level
EAP exemptions have salary test and duties test
Those paid less than $970/week would not meet the salary test and could not be exempt
Those paid more must still meet the duties tests

13. Possible duties changes To require a specific percentage of time
Proposed rule suggested 50% (California model)
Under the pre-2004 rule, the requirement was 80% for most EAP workers, or 60% in retail
Current rule of “primary duty” even if less than half time spent in exempt work

14. Planning for changes Verify that employees are correctly classified
Identify EAPs earning less than $970 per week
Final rule salary might be lower, but don’t bet on it
If some will no longer qualify, decide whether to make them nonexempt or increase their salaries
Decisions may be impacted by duties test revisions

15. Changing to hourly To identify a possible nonexempt hourly rate:
Track hours to determine average overtime hours
You “may require exempt employees to record and track their hours and to work a specified schedule” (FLSA )
Multiply overtime hours (those beyond 40) by 1.5 because overtime is at 1.5 times the regular rate
Divide total by current salary

16. Retaining the exemption If you would like to retain the exempt status:
Must be paid at least the new salary
If percentage must be spent in exempt work, track:
Hours performing exempt duties, and
Hours performing nonexempt duties
Some states already impose a percentages
80% for EAP exemptions, 60% in retail
Concurrent duties not allowed in some states

17. Duties challenges Example for supervisor:
Michelle is a supervisor earning $1,000 per week
Spends 70 percent of time in nonexempt duties
Could be exempt now under the concurrent rule
If a new rule requires spending 50% of the time in exempt work, that should be tracked also
Might not qualify under the upcoming rule, despite a salary in excess of $970 per week

18. Summary of steps to take
Verify current exemption status
Understand duties requirements
Evaluate salary levels
Anyone below $970 per week is affected
Might lose exemption regardless of pay
Have several plans to implement on short notice
Example: If no duties test change, raise salary. If percentage requirement, switch to nonexempt.