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September 30, 2016 - 8:00 a.m. – 9:00 a.m.

By Doris E. Brosnan

An Employer Guide: DOL’s New Overtime Exemption Rules

Overview of Upcoming Changes

• In 2014, Pres. Obama asked Dept. of Labor (“DOL”) to revise the regulations, which had not been revised since 2004.

• On May 18, 2016, the DOL released its final rule.

• The changes relate to the minimum salary threshold for the salaried exempt status.

Review of White-Collar Exemptions

• Salary level test.• Salary basis test.• Job duties test.

“Salaried exempt” status• Exempt from minimum wage and

overtime pay requirements.• What is salaried basis?

– Paid the same amount every week, regardless of hours worked (with some exceptions).

– Have to meet standards related to job duties.

Duties Test - Concepts• Executive: Managing at least 2 other employees

(hiring, firing, disciplining).• Administrative: Nonmanual tasks using independent

judgment and discretion.• Learned Pro: Work which is intellectual in character

requiring the consistent exercise of discretion and judgment.

• Creative Pro: Work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Duties Test – Concepts (con’t)

• Computer Professional: computer systems analysts, computer programmers, software engineers or other similarly skilled worker in the computer field performing certain duties.

• Outside Sales: Making sales or obtaining orders or contracts for services or use facilities AND customarily and regularly engaged away from the employer’s place or places of business.

• Highly Compensated: Office or non-manual work and paid total annual compensation of $100,000 (changing!)

New FLSA Rules (eff. 12/1)• New minimum salary to make the “salaried

employee” exemption increased from $455/week ($23,660/year) to $913/week ($47,476/year).

• Sets the total annual compensation requirement for highly compensated employees to $134,004.

• Establishes a mechanism for automatically updating the salary and compensation levels every 3 years (beginning in 2020)

Bonus Can Be Counted (sort of)

• Employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level.

• Incentive bonuses tied to productivity and profitability. (Retention bonuses, commissions, formula-based)

• MAJOR REQUIREMENT: These bonuses must be paid on a quarterly or more frequent basis.

• Nondiscretionary is NOT spontaneously decided by employer.

Consequences• 4.2 million workers are going to now be

overtime eligible (unless they get a pay raise).

• May especially hurt rural businesses, small not-for-profit businesses, and local governments.

Federal Court Challenge• On Sept. 19, 2016, a group of 21 states filed

a lawsuit in federal court in the Eastern District of Texas challenging the rule.

• The group is led by Texas and Nevada, and it includes Wisconsin.

• Argument: the new rule will force businesses, including state and local governments to “unfairly” increase their labor costs.

Federal Court Challenge (con’t)

• State govs. argue that the 10th Amendment is violated and it will wreck state budgets.

• Challenge to mechanism for automatic increases every 3 years: violates Administrative Procedure Act because it is arbitrary and capricious and does not follow rulemaking requirement.

Conventional Wisdom• This lawsuit is….very far from certain

to succeed.• Employers need to assume the rule will

go into affect on 12/1.• Do not wait for a federal court to stop

the rules.

How to Prepare?• Audit your exempt workforce. Identify

anyone making a salary less than the thresholds.

• Raise salaries or be prepare to pay overtime for hours worked over 40 in a workweek.

• Make everyone keep track of time.

Reclassifying Employees• Work with outside counsel.• There are pitfalls.

Wisconsin Rules• Don’t forget about Wisconsin’s wage

and hour rules!• Not enforced against non-profits.• If there is a difference in favor of

employee, you must follow Wisconsin rule.

Duties Test – Wisconsin Difference

• Wisconsin rules impose percentage limits on the amount of nonexempt work an employee may perform.

• Limit = 20% for most exempt jobs, and 40% for retail and service establishments.

• Wisconsin also says exemption only applies to overtime, not minimum wage.

• NOTE: Wisconsin overtime law not enforced against non-profits.

Other Wage and Hour Issues“Off the clock” work will continue to be the subject of collective and class actions.

– “Preliminary” and postliminary” time– “Donning and Doffing”– Unpaid meal periods that are constantly

interrupted.– Work from home on digital devices.

QUESTIONS???