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Wage and Hour
Update
The U.S. DOL’s
New Overtime Rule
Presented By: Jonathan B. Orleans June 22, 2016
May 17, 2016
White House Increases Overtime Eligibility
by Millions
Under the new regulation to be issued by the Labor
Department on Wednesday, most salaried workers earning up
to $47,476 a year must receive time-and-a-half overtime pay
when they work more than 40 hours during a week. The
previous cutoff for overtime pay, set in 2004, was $23,660.
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8,781 new wage-hour cases were filed in the federal courts in the year that ended September 30, 2015 – a record number.
This continues an upward trend since 2000; over four times as many new federal wage-hour cases were filed last year as fifteen years ago.
Driving factors include: increased knowledge on the part of workers and lawyers; highly publicized suits like those against Uber and Fed Ex; availability of attorney fees and liquidated damages; and the government’s campaign against what it considers misclassification of employees as independent contractors
Wage/Hour Filings Hit Record High
New Overtime Rules - Background
What is overtime pay?
• Compensation at one and one-half times the employee’s usual hourly rate for any hours beyond forty worked in a workweek.
Who is entitled to overtime pay?
• Basically, every worker is entitled to overtime, UNLESS an exemption applies.
The most common exemptions – usually called the “white collar” exemptions – are for executive, administrative and professional employees. (There are others.)
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New Overtime Rules - Background (Cont.)
To be exempt, an employee must satisfy both a two-part “salary basis test” and a “duties test.”
It is NOT the case that any employee paid “on salary” is therefore exempt from overtime.
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Salary Basis Test – Part 1 “Paid on a Salary Basis”
The individual must be paid on a salary basis – i.e., the employee receives a predetermined amount of compensation on a weekly, or less frequent, basis, which cannot be reduced based on the quality or quantity of the employee’s work.
Subject to very limited exceptions, the employee must be paid in full for any week in which s/he performs any work.
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Salary Basis Test – Part 1 “Paid on a Salary Basis,” cont.
Deductions are permissible only in limited circumstances, including
–Full day absences for personal reasons other than sickness/disability
–Full day absences for sickness or disability if the employer has a bona fide plan
–Other
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Salary Basis Test – Part 2 “Salary Threshold”
An exempt employee must receive a salary that meets or exceeds the exempt salary threshold.
The salary threshold was set in 1975 at $250 per week; it was last changed in 2004, and was then set at $455 per week. (It is $475 per week in Connecticut, by State law.)
For the mathematically or economically inclined: $250 in 1975 would be $1105 today; $455 in 2004 would be $573 today.
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The New Threshold Salary
Effective December 1, 2016, the exempt salary threshold will be $913 per week, or $47,476 per year.
This level represents the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region, currently the South.
Rather than remain fixed as in the past, the threshold will update automatically every three years, remaining pegged to the 40th percentile of earnings for full-time salaried workers in the lowest-wage Census region. The first update will take effect January 1, 2020.
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Non-Discretionary Bonuses
A new “pro-employer” provision of the Rule.
Nondiscretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10% of the salary threshold.
These payments must be made on a quarterly or more frequent basis.
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The Duties Tests
The duties tests have not changed.
–Executive employees
–Administrative employees
–Professional employees
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Options for Employers – Raise or Reclassify?
Determine which employees currently classified as exempt will not be exempt under the new salary threshold.
Calculate what it would cost to raise their salaries to the required threshold. (Consider the potential impact of nondiscretionary bonuses.)
Calculate what you should expect to spend in overtime if salaries are not raised.
Consider what will be the impact on employee morale of reclassifying employees who don’t meet the threshold.
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Options for Employers – Raise or Reclassify?
Determine what would be an appropriate hourly rate for the position if the employee were not exempt.
Consider whether there are opportunities to reorganize departments/teams/functions to reduce costs?
Plan how you will you go about answering these questions; and how you will communicate whatever you decide to your managers and employees.
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Options for Employers – The Fluctuating Workweek Method
A non-exempt employee may be paid a fixed salary that covers “straight time” for all hours worked in each workweek, whether few or many.
The employer then pays an additional “half-time” premium for the hours above 40 in each week.
There must be a clear (preferably written) understanding between employer and employee that the salary covers whatever hours the job may demand in any particular workweek.
The salary must be sufficiently large that the employee earns at least minimum wage for each hour worked in every week.
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Options for Employers – The Fluctuating Workweek Method
Under the fluctuating workweek method, the basic hourly rate changes from week to week.
For example, if the salary is $600/week:
–The employee works 30 hours, and is paid $600, for an hourly rate of $20/hour.
–The employee works 40 hours, and is paid $600, for an hourly rate of $15/hour.
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Options for Employers –The Fluctuating Workweek Method, cont.
–The employee works 50 hours, and is paid $660; a salary of $600 (covering straight time for all hours worked), for a basic hourly rate of $12/hour, plus an additional $60 representing the half-time premium of $6 per hour for the ten hours above 40.
–The employee works 60 hours, and is paid $700; a salary of $600 (covering straight time for all hours worked), for a basic hourly rate of $10/hour, plus an additional $100 representing the half-time premium of $5 per hour for the 20 hours above 40.
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Other FLSA Exemptions: Highly Compensated Employees
Not recognized under Connecticut law.
Under federal law, employees who customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee, AND
who are paid total annual compensation of at least $134,004, at least $913 per week of which must be paid on a salary or fee basis (and the remainder of which may be paid through a combination of nondiscretionary bonuses, commissions, and other forms of nondiscretionary deferred compensation
are exempt from overtime pay requirements.
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Other FLSA Exemptions: Computer Employees
Not recognized under Connecticut law.
Earns at least $913 per week on a salary or fee basis, OR
If compensated on an hourly basis, earns at least $27.63/hour;
AND
Is employed as a computer systems analyst, programmer, software engineer or other similarly skilled worker in the computer field;
AND
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Other FLSA Exemptions: Computer Employees
Has primary duty consisting of:
– Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; OR
– Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; OR
– Design, documentation, testing, creation or modification of computer programs related to machine operating systems; OR
– A combination of the above duties, the performance of which requires the same level of skills.
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Other FLSA Exemptions: Outside Sales
The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
The employee must be customarily and regularly engaged away from the employer’s place or places of business.
The salary requirements of the regulation do not apply to the outside sales exemption.
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Issues for Employers
Adjusting salaries and/or reclassifying currently exempt workers
Controlling overtime
Tracking work time
Travel and on-call time
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QUESTIONS
?
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Contact Information
© 2015 Pullman & Comley LLC 23
Jonathan B. Orleans Pullman & Comley, LLC
850 Main Street
PO Box 7006
Bridgeport, CT 06601
Tel: 203.330.2129
Email: jborleans@pullcom.com
BRIDGEPORT | HARTFORD | STAMFORD | WATERBURY | WHITE PLAINS
www.pullcom.com
These slides are intended for educational and informational purposes only. Readers are advised to seek
appropriate professional consultation before acting on any matters in this update. These slides may be
considered attorney advertising. Prior results do not guarantee a similar outcome.
These slides are intended for educational and informational purposes only. Readers are advised to seek
appropriate professional consultation before acting on any matters in this update. These slides may be
considered attorney advertising. Prior results do not guarantee a similar outcome.
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