TheSimplestRoutetoComplexity:UnderstandingtheFLSAOver>meRevisions

September29,2016HealthcareFinancialManagementAssocia>on

WestVirginiaChapterMorgantown,WestVirginia

RodneyL.BeanSteptoe&JohnsonPLLC1085VanVoorhisRoad,Ste400P.O.Box1616Morgantown,WV26507-1616(304)598-8140rodney.bean@steptoe-johnson.com

ExecuOveSummary

•  RevisiontosalarylevelrulesunderFairLaborStandardsAct•  Willmorethandoublethesalarylevelrequiredformost“whitecollar”exempOons•  NewrulesareeffecOveonDecember1,2016

Timeline

•  History– March,2014:PresidentObamadirectedDOLtoreviseandsimplifytheoverOmeregulaOons

–  July6,2015:DOLissuedtheproposedrule

–  September4,2015:Commentperiodcloses.DOL-record300,000commentswerefiled

– May18,2016:Finalrulepublished

ContextofChange

•  Changeaffects“whitecollar”exempOons– CompleteminimumwageandoverOmeexempOonsforbonafideexecuOve,administraOve,learnedprofessional,creaOveprofessional,outsidesales,andsomecomputeremployees

QuickReview

•  ThreeTestsforExempOon– SalaryBasis– SalaryLevel

•  Salarybasisandleveltestsdonotapplytodoctors,lawyers,teachers,oroutsidesalesemployees•  Computeremployeescanbepaidhourly($27.63)

–  JobDuOes

SimplificaOon

•  Thesimplestwaytosimplifytherules– Nochangestosalarybasistest– NochangestotheduOestests

•  Nochangeto“primaryduty”definiOon

– Changesonlythesalaryleveltest•  NochangeaffecOngdoctors,lawyers,teachers,outsidesales

SalaryLevelChange

•  Newminimumsalarylevel– $913perweek($47,476annualized)

•  Morethandoublethecurrent$455perweek($23,660annualized)•  ReducedfromDOL’sproposed$970perweek($50,440annualized)

– Setat40thpercenOleoffull-Omenon-hourlypaidemployeesinthelowestwagecensusregion(theSouth)

SalaryLevelChange

•  HighlycompensatedemployeeexempOon– Salarylevelwillincreasefrom$100,000peryearto$134,000peryear•  Higherthanthe$122,148peryearinproposedregulaOons

– Setatthe90thpercenOleofearningsoffull-OmesalariedworkersnaOonally

SalaryLevelChange

•  Remember–SalaryLevelisjustonethirdofthetestforexemptstatus– SOllmustmeetsalarybasistest– SOllmustmeetcomplexduOestest

•  ExecuOve•  AdministraOve•  Professional•  Certaincomputeremployees•  OutsideSales

BonusesandIncenOves

•  BonusesandIncenOvePayments– Changefromcurrentlaw– EmployerscanusenondiscreOonarybonusesandincenOvepaymentsandcommissionstosaOsfyupto10percentoftherequiredsalarylevel•  Mustbepaidatleastquarterly•  Catch-upprovisionwillallowemployerstomakeupdifferenceifbonuses/commissionsfallshortoftherequiredsalarylevel

BonusesandIncenOves

•  Onlynon-discreOonarybonusescount–  Notannouncedinadvance–  Notpaidaccordingtoaformula–  Non-discreOonarybonusesmustberolledintoregularrate–  Becarefulaboutbonusespayabletoemployees“ingoodstanding”–  PerformancemilestonesshouldbeobjecOvelyachievable

•  Annualbonusesdon’tcount–  Bonusesmustbepaidatleastquarterly

BonusesandIncenOves

•  Applyingthecatch-upprovision–  Employermustpaytheexemptemployeeasalaryofatleast90%oftheminimumsalarylevelforeachworkweek($821.70)

– Attheendofthequarter,ifthesalaryplusallnon-discreOonarybonuses,incenOvepayments,commissionsdonotequalatleast$11,869(25percentof$47,476),employermustmakeuptheshorkallinthefirstpayperiodofnextquarter•  RequiresaquickcalculaOon•  Whataboutanemployeewholeavesinthemiddleofthequarter?

AutomaOcUpdaOng

•  AutomaOcUpdaOng– SalarylevelsforexempOonswillbeupdatedeverythreeyears•  ProposedregulaOonswouldhavechangedthemannually•  U.S.ChamberofCommerceischallengingthisprovision

– DOLwillpublishupdatedratesatleast150daysbeforeeffecOvedate

– FirstautomaOcrevisioneffecOveJanuary1,2020

AutomaOcUpdaOng

•  AutomaOcUpdaOng– UpdateswillbebasedondatafromQ2oftheprecedingyear

– EffectofnewregulaOonsthisyearcouldcauseabigjumpinthesalarylevelin2020•  Increasetonon-hourlypayoverallwillskewdataupwards•  Currentlower-wageexemptworkerswillbepushedoutofthedatasetbecausetheywillnowbenon-exempt

EffecOveDate

•  ChangebecomeseffecOveonDecember1•  WestVirginialawrequiresadvancenoOceofchangesinpayrate– “Whenanemployerchangesanemployee’srateofpay...theemployershallfurnishawrinennoOcetotheemployeeatleast1fullpayperiodpriortotheeffecOvedateofthechange.”• W.Va.C.S.R.§42-5-4.2.

EffecOveDate

•  Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct•  IntroducedinSenateonMarch17,2016

– CongressionalReviewAct– LiOgaOon– Lasthope?

EffecOveDate

•  Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct•  IntroducedinSenateonMarch17,2016

– CongressionalReviewAct– LiOgaOon– Lasthope?

EffecOveDate

•  Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct•  IntroducedinSenateonMarch17,2016

– CongressionalReviewAct– LiOgaOon– Lasthope?

EffecOveDate

•  Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct•  IntroducedinSenateonMarch17,2016

– CongressionalReviewAct– LiOgaOon– Lasthope?

EffecOveDate

•  Lasthope?"Wehavetoaddresstheissuesofover-taxaOonandover-regulaOonandthelackofaccesstocreditmarketstogetoursmallbusinessownersthrivingagain.Rollingbacktheover>meregula>onisjustoneexampleofthemanyregula>onsthatneedtobeaddressedtodothat.Wewouldlovetoseeadelayoracarve-outofsortsforoursmallbusinessowners."

DonaldTrump,Circa(Aug.12,2016)

DOLNon-EnforcementPolicy

•  DOLNon-EnforcementPolicy– Time-limitednon-enforcementpolicyforprovidersofMedicaid-fundedservicesforindividualswithintellectualordevelopmentaldisabiliOesinresidenOalhomesandfaciliOeswith15orfewerbeds

– DOLwillnotenforcethenewsalarylevelsunOlMarch17,2019

– ButBEWARE...

DOLNon-EnforcementPolicy

•  Non-EnforcementPolicyonlyappliestoacOonbytheDOLitself– ButDOLacOonisjustonepathtoFLSAenforcement.•  StatesandprivateciOzenscansOllsuetoenforcethefinalruleduringtheDOL’snon-enforcementwindow

– SafestrouteistocomplybyDecember1

AMajorChange

•  Broadeffect–  4.2millionexemptemployeeswillautomaOcallybecomenon-exempt

–  5.7millionaddiOonalworkersnowclassifiedasexemptbutinagrayareawillbereclassifiedasnon-exempt

– Alltold,willaffectmorethan14percentoftheAmericanworkforceduringfiscalyear2017

AMajorChange

•  BigCosts– Willcostemployersabout$1.2billionayearin“transferofincomebetweenemployersandemployeesintheformofhigherearnings”

– AddiOonally,employerswillspendabout$295millionin“regulatoryfamiliarizaOon,adjustmentcosts,andmanagerialcosts”

AMajorChange

•  Mostaffectedindustries– Professionalandtechnicalservices– Healthcare– Finance– Retail–  Insurance– EducaOon

PreparingforChange

•  CompliancePlan– Getstartednow!– Thisinvolvesmath,andmathishard.

PreparingforChange

•  CompliancePlan– Figureoutwhowillneedtobereclassified– Trainyourmanagersandnewnon-exempts– Reviewyourpaypolicies– Considerunintendedconsequences

PreparingforChange

1. Figureoutwhowillneedtobereclassified• Makealistofexemptjobspaidlessthan$47,476• Whatwillyoudowithexemptemployeesclosetothesalarythreshold?– Raisetheirsalarytothenewlevel?– Convertthemtonon-exemptandconOnuepayingthemasalary?» WillthesalarybelowertoaccountforoverOme?» HowwilloverOmebecalculated(dividesalaryby40;dividesalarybyactualhoursworked;fluctuaOngworkweek)

– Convertthemtonon-exemptandpaythemonanhourlybasis?

PreparingforChange

• DoyouhaveasenseofhowmuchOmetheyareactuallyworking?• WillyouneedtolimithoursorhireaddiOonalworkers?• IfyouhaveanaccuratesenseoftheamountofOmenecessaryforthework,youcandesignacompensaOonstructurethatwillcloselyreplicatethesalaryofformerlyexemptemployees

PreparingforChange

•  EXAMPLE–Possiblestrategiesforcurrentlyexempthospitalaccountantearning$42,000annualsalaryandnobonusorcommission.– Employeeworks45hoursinaworkweek– Works52weeksperyear– Primarydutyisexemptwork

PreparingforChange

•  OpOon1:Increasetheemployee’ssalaryby$5,476peryear.Employeeremainsexempt.

•  OpOon2:Reclassifytheemployeeasnon-exemptatcurrentsalary.OverOmepaywilladd$7,875inlaborcosts.

•  OpOon3:Reclassifytheemployeetonon-exemptwithhourlyrateof$17.WiththeexpectedoverOme,earningsshouldbeaboutthesame.

PreparingforChange

•  Cost-NeutralFormula(forOpOon3)– Weeklysalary/(40+(OTHoursx1.5))–  (42,000/52)/(40+(5x1.5))– 807.69/47.5– $17.00

–  Source:DOL’s2003NPRM(Preamble)(68Fed.Reg.15576)

PreparingforChange

•  ThisisagoodOmetorevisejobdescripOons– DuOesmaner,notOtles– DravthejobdescripOonforexemptposiOonstoshowthattheposiOonisperformingexemptwork

PreparingforChange

•  ThisalsoisagoodOmeforajobduOesreview.– Weallhaveemployeesinthegrayarea– Regulatorychangeprovidesarareopportunitytomakechangeswithoutshiningalightonthereason

PreparingforChange

2. Trainyourmanagersandnewnon-exempts•  Rememberalltheaddedrequirementsthatcomewithnon-exemptemployees•  YouwillneedtotrainformerlyexemptemployeeshowtokeeptrackoftheirOme•  Youwillneedtotrainnewlynon-exemptmanagerswhoareusedtoansweringemailsatallhoursthattheycan’tdothat,oratleastmustaccountfortheirOme•  Youwillneedtoeducatenewlynon-exemptonwageandhourpoliciesthatmightapplytotheminalessflexiblemanner

PreparingforChange

3.  ReviewPayPolicies•  Considerhowyourpayandbenefitspolicieswillapplyto

yournewlynon-exemptemployees.–  Benefitseligibility–  Mobiledevices–  TravelOme–  Off-the-clockwork

PreparingforChange

4.  PrepareforUnintendedConsequences•  EmployeestatuspercepOon•  ProducOveexemptswhomaybenon-producOvenon-exempts

That’sall,folks!

QuesOons?