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NEW WHITE COLLAREXEMPTION REGULATIONSWhat Does It Mean for Employers?
Karen L. Karr
(480) 684-1108
clarkhill.com
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WHY DO I CARE?
The Fair Labor Standards Act (“FLSA” or “Act”) enacted in 1938 as part of thefederal government’s effort to lift the country out of the Great Depression
Over 75 years later, the Act still serves as the centerpiece of wage and hour lawsin this country
The FLSA has three major provisions:
1. Employers must pay a statutory minimum hourly wage
2. Employers must pay non-exempt employees additional compensation forovertime work, calculated at 1-1/2 times the employee’s regular rate for alltime actually worked over 40 in one week
3. Employers must keep track of the hours worked by employees
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LAWSUIT RISK
The potential exposure for such a lawsuit is high:
– Back wages (often for a class of employees) going back up to three years
– An additional amount as liquidated damages
– AND plaintiff’s attorneys’ fees (which may exceed the amount paid to theemployee(s))
– PLUS the company’s legal defense fees
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RISK EXAMPLE
Company A has 10 employees and pays each a salary of $500.00 per week
About half the time, they are so busy the employees work 50 hours, but were notpaid overtime
Result: Company A could owe up to $292,500 (not including attorneys’ fees)
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EXAMPLE CALCULATIONS
Effective hourly rate: $12.50 ($500 ÷ 40 hours)
Effective overtime rate: $18.75 ($12.50 x 1.5)
Overtime hours per week: 100 (10 hours x 10 employees)
Total weeks: 78 (3 years x 52 weeks ÷ 2)
Total overtime due: $146,250 ($18.75 x 100 x 78)
Liquidated Damages: $146,250
TOTAL: $292,500
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EXAMPLE CALCULATIONS
PLUS $100,000 - $150,000 for plaintiff’s attorneys fees!
PLUS an equal amount for your defense costs
TOTAL: Devastating
LIABILITY: corporation, can be personal
Insurance? Mostly no
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TODAY YOU WILL LEARN
How the new rules fit into the existing FLSA structure
Overview of the new salary rules
How you can use nondiscretionary bonuses and other payments to meet salaryrequirements
What the new “highly compensated employee” rules are
How the escalator provision will work
Steps you can take now to prepare for the December 1st, 2016 effective date
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THE FLSA STRUCTURE
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THE FLSA STRUCTURE
FLSA requires employers to:
– Track employee time
– Pay for all working time (as defined)
– Pay overtime if employee works more than 40 hours during a workweek
Challenges:
– Paying overtime is expensive
– Employees work odd hours and can be hard to track
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EXEMPTIONS GENERALLY
There are numerous exceptions to the overtime rule (“exemptions”)
Those affected by Final Rule: White Collar Exemptions
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WHITE COLLAR EXEMPTIONS
Three also require that the employee be paid on a salary basis:
– Administrative
– Executive
– Professional
Exempt Computer professionals may be salaried
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THREE REQUIREMENTS
To be exempt from overtime, the employee must:
– Satisfy the salary basis test
– Satisfy the salary level test
– Satisfy the duties test
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THREE REQUIREMENTS
Not all White Collar employees who are paid a salary are exempt:
– They must meet the duties test for the particular exemption AND
– Their full salary must be paid every week in which they perform services (withsome exceptions)
Today, we’re talking only about the salary level test
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REASON FOR INCREASE
March 2014: President Obama directed DOL to update and modernize overtimestandards
DOL researched salary levels and determined that the current rules were notkeeping up with inflation
Some exempt employees could be below the poverty line
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SALARY IN THE PAST
The Salary Test has been updated seven times since 1938
Salary since 2004:
– $455 per week
– $23,660 annually
Poverty level:
– $23,850 for family of four
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NEW SALARY RULES
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PROPOSED NEW RULE
Proposals published July 6th, 2015
– $955 per week
– $50,440 annually
Over 250,000 comments
FINAL RULE issued May 18th, 2016
Effective December 1st, 2016
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FINAL NEW RULE
$913 per week
$3,956 per month
$47,476 annually
More than double the previous rate
40% of salaried workers currently earn below this amount
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ADDITIONAL PAYMENTS
OLD RULE:
– Salary must be one, set amount received every week
NEW RULE:
– Other amounts may be used to reach weekly threshold:
o Bonuses (only nondiscretionary)
o Commissions
o Incentive payments
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ADDITIONAL PAYMENTS
Must be paid at least quarterly
Can count for only 10% of required amount
– Weekly: 10% x $913 = $91.30 per week
– Quarterly: 10% x $11,869 = $1,186.90
So, if employee receives at least $1,186.90 quarterly in commissions or non-discretionary bonuses, his weekly pay for that quarter could be as low as $821.70
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SUMMARY – STANDARD SALARY LEVEL TEST
Weekly salary raised to $913
Up to $91.30 per week may come from other types of guaranteed income(commissions, nondiscretionary bonuses, and other incentive plans)
IF NOT: Must pay overtime
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HIGHLY COMPENSATEDINDIVIDUALS
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HIGHLY COMPENSATED INDIVIDUALS
Some employees paid so much, DOL does not worry that they are being takenadvantage of
For Executive, Administrative and Professional, duties and salary test are different
DUTIES: Need to perform at least one exempt duty
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SALARY – HIGHLY COMPENSATED INDIVIDUALS
OLD RULE: $100,000 per year
– $1,923 per week
– $8,333 per month
NEW RULE: $134,004
– $2,577 per week
– $16,080 per month
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THE ESCALATOR PROVISION
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THE ESCALATOR PROVISION
OLD RULE: DOL needed to go through rule-making process to increase
NEW RULE: These amounts will increase every three years
– Next increase: January 1st, 2020
– Amount of increase:
o Salary basis: 40th percentile of salaried employees
o Highly Compensated individuals: 90th percentile of salaried employees
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STEPS YOU CAN TAKE NOW
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LEARN ABOUT THE FLSA
Many exemptions, not just professional, administrative and executive
Rules for identifying exempt employees are grounded in statutes, regulations andsometimes case law that are often obtuse and confusing
Rules for paying non-exempt employees are detailed, specific and often anti-intuitive
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ANALYZE
DOL/Courts evaluate on case-by-case basis
Identify employees who are obviously exempt
Identify employees who are obviously not exempt
For all employees in the gray zone in between, either:
– Pay them as nonexempt OR
– Contact a Clark Hill attorney for further legal analysis
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CLARK HILL SOLUTIONS
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WEBINARS
• Today
• June 16
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WAGE & HOUR WORKSHOPS
Designed to train HR Professionals on the law and provide instruction on how toconduct an internal assessment of your job classifications
Birmingham, MI: June 15, 29
Chicago, IL: June 16, 21
Detroit, MI: June 14, 22, 28
Grand Rapids: June 16, 23
Philadelphia: June 7, 14, 21
Phoenix: June 17, 24
Pittsburgh: June 15, 16, 29
www.clarkhill.com/pages/hr-advantage-wage-hour-workshops
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BROWN BAG LUNCH TRAININGS
• At your office
• Train all of your HR employees at one time
• Focus on YOUR company
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CONVENTIONAL LEGAL ADVICE
• 1 on 1 analysis and advice
• All positions OR those in the Gray Zone
• Review of job descriptions and interviews
• Who is exempt?
• Provide advice about exemptions
• Solve compensation issues
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THANK YOULegal Disclaimer: This document is not intended to give legal advice. Itis comprised of general information. Employers facing specific issuesshould seek the assistance of an attorney.