the fair labor standards act (flsa): what employers need...
TRANSCRIPT
Shayna Fernandez Watts
Ballard Spahr, LLP
The Fair Labor Standards Act (FLSA):
What Employers Need to Know
Today’s Roadmap
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History of the FLSA
Changes to the Law
What you need to do now
History
• 1938: FLSA originated in President Franklin Roosevelt’s New Deal.
• First minimum wage was 25¢/hour; work week limited to 44 hours.
• Developed standard for keeping records of hours worked and wages paid.
• Banned child labor. Children under 14 no longer legally allowed to work. Exceptions for the
agricultural industry and some family businesses. Children under 18 restricted from
"hazardous" jobs, including mining.
• 1940: work week limited to 40 hours.
• 1963: amendment to the FLSA called the Equal Pay Act prohibited differences in pay based on
sex.
• Over 20 amendments have been made to the Fair Labor Standards Act. Most of these were
made to increase the minimum wage, which has gone from 25¢ in 1938 to $10 in 2017, per
Prop 206.
• U.S. DOL enforces FLSA while the EEOC enforces the Equal Pay Act.
Law
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• The Fair Labor Standards Act (FLSA) sets the minimum wage and governs overtime payments for covered workers.
• EE who works more than 40 hours/week is entitled to overtime compensation at a rate of one and a half times the EE’s regular rate of pay.
• Certain classes of EEs are exempt from the minimum wage and overtime provisions.
• State laws can impose additional obligations as can private agreements like collective bargaining agreements and individual employment agreements.
• Rights are non-waivable.
Law (cont.)
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Coverage v. Exemptions
Under the FLSA, all employees are considered non-exempt (protected) unless the regulations specifically allow an exemption based on the duties of the position, and the employer has opted to use this exemption.
Major Categories of Exemptions
• Executive
• Administrative
• Professional (Learned, Creative, and Computer)
• Outside Sales (Needn’t be paid on salary basis)
• Highly Compensated
White collar
Change 1: Salary Thresholds Increased
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On May 17, 2016, the DOL issued its final rule substantially increasing the annual salary an employee must earn to be exempt from overtime pay requirements.
• Effective 12/1 Salary Threshold Changes to $47,476 per year, which is at least
$913 per week (currently $23,660 or $455 a week).
The new threshold doubles the current salary threshold level.
Change 1: Salary Thresholds Increased (cont.)
Change 1: Salary Thresholds Increased (cont.)
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• Most exempt employees must be paid at least $913 a week
that is not subject to reduction based on the quality or
quantity of work performed.
• The regulations only permit deductions in limited
circumstances.*
• Additional payments can be made in the form of overtime
(straight time, time-and-a-half, or some other amount),
compensatory time, bonuses, and commissions.
• Biggest issues and partial day deductions and disciplinary
suspensions.
Change 2: Automatic Salary Increases
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• Automatic salary threshold increases every 3 years
starting in 2020.
• The minimum salary for exempt white-collar workers
will be tied to the 40th percentile of weekly earnings
of full-time salaried workers in the lowest wage
census region in the U.S., currently the South.
• HC EE salary threshold will be reset every 3 years at
the 90th percentile of earnings of full-time salaried
workers in the nation, based on BLS data from the
prior year’s 2nd quarter.
Change 3: Non-Discretionary Bonuses
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• Employers can use other forms of compensation
to satisfy up to 10% of the new minimum salary
requirements.
• The additional compensation must be paid at least
quarterly and may include nondiscretionary
bonuses, incentive payments, and commissions.
Change 3: Non-Discretionary Bonuses (cont.)
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• Math: The final rule requires employers to pay exempt employees at least 90% of the
minimum salary level per workweek. This equates to $821.70 per workweek or
$42,728.40 annualized. Additional compensation – up to $4,747.60 per year, or
$1,186.90 per quarter – may be used to satisfy the remainder of the salary
requirements.
• Shortfall: If, at the end of a quarter, the salary plus 10% of the additional
compensation does not equal $913 per workweek, the final rule permits a one-time
shortfall payment to be made. The shortfall payment must be paid no later than the
first pay period following the end of the quarter. The shortfall payment must satisfy
the minimum salary for the preceding quarter, as spread over a 13-week period.
• Such a payment applies only to the preceding quarter and cannot be used to meet
the salary requirements for the quarter in which it was paid.
• If a shortfall payment is not made, overtime is then owed for hours worked over
40 per workweek in the corresponding quarter.
Change 4: Highly Compensated EEs
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• Highly Compensated Employee (HCE) exemption is now $134,004/Yr.
(Effective 12/1/16.)
• An employee paid on a salary basis at least $913 per week with total annual
compensation of at least $134,004 is deemed exempt if the employee
customarily and regularly performs duties meeting at least one of the executive,
administrative, or professional exemption requirements.
• When a portion of the compensation is paid through bonuses or commissions or
other non-salary, the employer has a window at the end of the year to bring the
salary above the threshold if necessary.
• The shortfall mechanism is not available, but additional compensation of up to
$86,524 – in the form of bonuses, commissions, or incentive payments – can be
used to satisfy the highly compensated employee test.
Nex
t S
tep
s• If there are employees who you believe are
exempt but don’t meet the salary
requirement, there are a few options:Convert them to non-exempt on or before December
1, 2016 and ensure that they are paid overtime for all
hours worked over 40 in a workweek.
Raise their salary to the statutory threshold effective
December 1, 2016.
Meet the salary threshold through a combination of
base wages and non-discretionary bonuses.
Nex
t S
tep
s• In considering the options, one of the
concerns that many employers have is
the lack of cost certainty associated
with moving employees to non-exempt
status. In order to get a better cost estimate, employers
can have exempt employees track all their actual
work time (if they don’t already) to see typical
hours (avoid unusual periods like heavy vacation
time).
Nex
t S
tep
s• Consider adopting policies requiring
employees to get approval for
overtime in advance and enforce
them. Employees must be paid for all hours worked
that employers know or should have known
about, even if unauthorized.
Send employees home – do not let employees
work OT without authorization.
Employees can be disciplined for
unauthorized overtime work in violation of
company policy.
Nex
t S
tep
s• Develop a plan to ensure that all time
worked by non-exempt employees is
being captured. Time tracking methods vary – no particular method
required as long as it accurately captures time.
Educate employees about the need to report ALL
time worked.
Limit access by non-exempt employees to work
tools after hours or have a system to track and pay
for this time.
Educate supervisors about limiting contact with
non-exempt employees after hours.
Make sure pay practices are legal.
Nex
t S
tep
s• If you realize that employees have
been misclassified as exempt, this is
the time to fix it: Decide whether you will pay back overtime owed
and, if so, how you can calculate it.
Employers cannot get employees to release FLSA
claims, but employees can acknowledge that they
have received payment of all monies owed.
• Failure to address mistakes could lead
to liquidated (double) damages and
adding an additional year to the claims
period.
Other topics for another day:
• Duties Tests - Primary Duty / Concurrent Duty
• Coverage
• Telecommuting
• De Minimus Rule
• Preliminary/Postliminary Activities
• Integral and Indispensable Time
• Travel Time
• Training
• Meal and Rest Periods
• Punch Windows
• Rounding
Questions?
Shayna Fernandez WattsBallard Spahr LLP
1 East Washington Street, Suite 2300Phoenix, AZ 85004-2555
Direct 602.798.5424Fax 602.798.5595