Strategies to Respond to the DOL’s Revised Salary Exempt Test

Julie E. Byrne, Esq.Frost Brown Todd LLC9277 Centre Pointe Drive, Suite 300West Chester OH 45069513.870.8214 – directjebyrne@fbtlaw.comwww.frostbrowntodd.com

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Amy RamseyIronRoad9435 Waterstone Blvd513.605.3522 aramsey@ironroad.uswww.ironroad.us

FAIR LABOR STANDARDS ACT

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Historical Perspective—Why was FLSA passed? Passed in 1938 Controversial

Southern States were concerned over amount of minimum wage

Applied to approximately 1/5 of the workforce Designed to address unemployment by

spreading work around. Minimum wage: 25 cents Hour Threshold: 44

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Statutory Exemption Language29 USC 213 (a)(1)

The provisions of sections 206 … and 207 of this title shall not apply with respect to— (1) any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary…

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White-Collar Exemptions (Quick Review) Most common

Executive. Administrative. Professional.

Others Outside Sales.

Commissions okay; no salary requirement. Skilled Computer.

Can be salary or hourly. Highly Compensated Employee

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Three tests To be considered "exempt," employees

must generally satisfy three tests that focus on how the employee is paid and the type of job duties the employee performs:

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salary level salary basis duties

Proposed Rule Changes

• March 13, 2014 Executive Order• Stated that because the white-collar exemptions are

“outdated, millions of Americans lack the protections” of minimum wage and overtime.

• Directed DOL to propose regulation revisions.• Instructed DOL to consider revisions consistent with the

intent of the FLSA, the changing workplace, and to simplify the regulations.

• Translation: make more people subject to overtime requirements.

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Rule Changes Department of Labor Rule Changes – June 30, 2015

Increase the Salary Basis Test for White Collar Exemptions Increases salary basis for Highly Compensated Employee

exemption. Public Comment period ended September 30, 2015.

Over 270,000 comments in response Final Rule published May 18, 2016. Effective Date: December 1, 2016.

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Final Rule Changes Salary Basis Minimum

Current Minimum $23,660 or $455/week.

Proposed New Minimum 40th percentile of all full-time salaried workers earnings

of full-time salaried workers in the lowest-wage Census Region, currently the South Evolving target. Automatic updates to these

thresholds will occur every three years, beginning on January 1, 2020. Lawful? What about notice and comment?

2016 = $50,440. $47,476 e.g. $970 / week. $913 / week.

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Proposed Rule Changes Highly Compensated Employee

Current Minimum $100,000 / year

Proposed New Minimum 90th percentile of all full-time salaried

workers Evolving target 2016 = $134,004 / year

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Something new… Additionally, the Final Rule amends the salary basis

test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. Such payments must be made on a quarterly or more

frequent basis In the proposal, the DOL said it was considering permitting

nondiscretionary bonuses, incentives, and commissions to count toward 10 percent of the salary level, but only if employers paid them on a monthly or more frequent basis. The Final Rule also allows employers to make a "catch-up" payment at the end of each quarter.

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No Change…

To the duties test.

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Tension

“Today, the annualized equivalent of the standard salary level is below the 2015 poverty threshold for a family of four, making it inconsistent with Congress' intent to exempt only "bona fide" EAP workers…”

But what about regional and industry concerns? Entire facilities without an EAP worker…

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Anticipated Effects of the Rule Changes 4.6 Million workers will change from exempt to non-

exempt. Approximately $255 million per year for employers to

familiarize themselves with new rules Transfer approximately $1.3 billion dollars of income

from employers to employees via higher earnings.

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Practical Impact Employee earns $41,600 / year.

No longer meets salary basis test – now non-exempt.

Hourly rate = $20 / hour Overtime rate = $30 / hour

Works 50 hours per week. 10 hours overtime / week = $300 OT / week 50 weeks = $15,000 OT Two years = $30,000 OT Backpay + Liquidated damages = $60,000

Plus attorney’s fees

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Practical Impact Reassignment of duties

FLSA originally designed to deter overtime and spread out work

Most employers have policies forbidding overtime unless approved

Increase in some employees salaries to avoid overtime expenses Likely with an increase in responsibilities due to

reassignment of lower paid employees duties Some will have no choice: Increase in

overtime costs

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Opportunities Good time to make changes. Blame it on the man.

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How to Deal with Changes Salaried employees earning less than $ 47,476 /

year Conduct audit of job to determine if duties otherwise meet

exemption. Consider moving all salaries up to new level

Be consistent with job titles Be wary of changing job titles to meet salary basis test

Be consistent Base changes on objective evidence / facts

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How to Deal with Changes Revise job descriptions to match job

Not the other way around

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How to Deal with Changes

Move affected positions to non-salaried positions Be sensitive to employee perceptions about non-

salaried role. Explain basis for change Opportunity for overtime

Monitor overtime You can discipline for non-approved overtime You must pay for all overtime worked

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Consider salaried, non-exempt positions. Must calculate regular rate and pay overtime.

Divide total earnings by hours worked for the week. Must keep track of hours worked.

Ensure descriptions of “salaried” positions specify that the salary is for all hours worked.

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How to Deal with Changes

How to Deal with Changes Do NOT consider making changes in a legal

vacuum FLSA is not the only factor to consider

Ex: NLRA supervisor (generally “assign” and “responsibly to direct” employees and to exercise “independent judgment) Charge nurses? Shift supervisors?

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IronRoad’s Plan

IronRoad will provide report of potentially effected employees Cross-section of exempt employees

Review List: Trends of positions?

Review Job Descriptions: Does the employee’s job description

match their actual job responsibilities and duties?

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Audit Job Descriptions

DOL Goal= More employees are “Non-Exempt” and

eligible for Overtime In Line with Foundation of FLSA

Philosophy What are the employee’s tasks?

Discretion and Independence? Or following standards of operations?

Employees need to sign off on their job description

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If employee changed to Non-Exempt Now employee is “Non-Exempt”

Determine hourly rate Non-Exempt Salary

Half-Time pay for Overtime Calculation Change of Status Form Provided to IronRoad

MUST have job descriptions to validate change of classification from Exempt to Non-Exempt

Meeting with Employee Discuss New Wage Rate Discuss Tracking Hours Discuss Overtime Policies

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If Employee Remains Exempt

Employee is going to remain “Exempt” Job responsibilities qualify employee to remain

exempt Adjust Salary accordingly Inform employee of change

Change of Status form provided to IronRoad Salary rate change needs to be noted Job description not required to make this change.

The exceptions: Outside Sales, Teachers, Lawyers, etc.

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Overtime Policy Review

All Employees who are Non-Exempt MUST be paid overtime for all hours over 40 hours per week including employees who are Non-Exempt Salary Regardless of if the OT is approved

Overtime Policy Needs to Define: Does overtime needs to be approved? Consequences for violating policy

Written Warning? Repeated Offenses– Termination?

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Julie E. Byrne, Esq.Frost Brown Todd LLC9277 Centre Pointe Drive, Suite 300West Chester OH 45069513.870.8214 – directjebyrne@fbtlaw.comwww.frostbrowntodd.com

Amy RamseyIronRoad9435 Waterstone Blvd513.605.3522 aramsey@ironroad.uswww.ironroad.us