what’s next for flsa compliance: proven strategies to ... · −flsa changes will impact an...

What’s Next for FLSA Compliance: Proven Strategies to

Minimize RiskSponsored by

What’s Next for Overtime ComplianceProven Strategies to Minimize Risk

Today’s Speakers

Lynne LevyPatrick Bannon

©2016 Seyfarth Shaw LLP

Today’s Webinar Plan

• What do the new overtime rules say?

• What do the new rules mean for businesses?

• What are the risks?

• How can the risks be mitigated?

4

What Do They Say?

THE NEW RULES:


Standard Salary Level Increased By More Than 100%

• New annualized salary level will be $47,476• This is $913/week• Less than $50,440 proposed in NPRM• Represents 40th percentile of full-time salaried workers in South (as of Q4 of 2015) in

apparent nod to employers who commented on regional cost of living variations

• Allows up to 10% of the minimum salary to be met by non-discretionary bonuses, incentive pay or commissions, if made at least on quarterly basis


Unprecedented Decision to Automatically Update Salary Level

• Beginning on January 1, 2020, the salary level required for exemption will be automatically updated every three years• DOL will post new salary levels 150 days before effective date

• Pegged to the 40th percentile of the lowest-wage region in the BLS data set (historically the South or Midwest) • Less disruptive than proposed annual increase and much less disruptive than annual

update based on 40th percentile • In 2020, the salary will increase to the estimated annualized level of

$51,168• a 7.7% increase over three years• similar increase for 2023 would reach $55,108• and a similar increase for 2026 would reach $59,351


Highly Compensated Employee Salary Level Increased More than $34,000

• New Highly-Compensated Salary Level will be $134,004• More than $122,100 identified in NPRM• Represents 90th percentile of full-time salaried workers nationally as of Q4 of 2015

• Requires payment on a salary basis of at least $913/week• Additional payments to bring to new level can include:

• Commissions• Nondiscretionary bonuses• End-of-year catch-up payment


No Changes to the Duties Tests

• In the NPRM, DOL asked several questions regarding the duties tests –particularly the primary duty test – but did not propose specific language

• In the Final Rule, DOL does not make any changes to the duties tests• Nor are there any changes to the salary basis test• As under the existing regulations, there still are no exceptions or

allowances for:• part-time employees• employees of non-profits, colleges or universities, or public entities


Employers Have Several Months to Comply

• Effective date is December 1, 2016• Any upward salary adjustments must be in place before to that date to

ensure continued application of exempt status• Note that December 1 is a Thursday

• For bi-weekly pay, employers will need to adjust pay for pay period that includes December 1, 2016

What Do The New Rules Mean for Businesses?


Develop A Plan To Reach Crucial Business Decision Points

• In some cases, increase salaries to $47,476 and continue to treat employees as exempt

• In other cases, reclassify employees to non-exempt status using a variety of pay options

• And in yet other cases, employers may choose to restructure:• Jobs• Workforce• Operations


First Steps of the Plan—Gap Analysis

• Analyze the “salary gap” to determine salary levels for exempt employees and identify any position—not just employee—that falls below the new standard

• Consider the “ripple effect” on upstream and cross-stream jobs• Analyze the “duties gap,” as well, to determine whether any jobs that are

paid at a sufficient salary level might not perform the duties of an exempt role

• Model various compensation plans to determine:• Cost of increasing salaries• Cost of reclassification


First Steps of the Plan—Plan to Reclassify

• Determine working hours of employees who might be reclassified• And how those hours might change as non-exempt employees

• Review records that may be suggestive of hours worked• Consider how those records may be over- and/or under-inclusive• Canvass those who manage to-be-converted employees

• Determine potential pay rates and compensation methods for those employees


First Steps of the Plan – How to Pay

• Hourly: Straight hourly rate for hours worked up to 40; 1.5 times regular rate of pay for hours worked in excess of 40

• Salary Plus Overtime: Salary for hours worked up to 40 (or some lower number); 1.5 times regular rate of pay for hours worked in excess of 40

• Fluctuating Workweek: Agreement with employee to pay salary for all straight-time hours worked; ½ time of salary divided by hours worked for OT hours

• Fluctuating Workweek/Static OT Rate: Agreement with employee to pay salary for all straight-time hours worked; ½ time of salary divided by 40 for OT hours


First Steps of the Plan – What to Pay

• Amount of the newly non-exempt employee’s rate?• Same as before reclassification

• Will increase labor costs• Especially when considering bonuses, commissions, incentive pay

• Could provide incentive for off-the-clock work• May price employee out of the market and lead to no or fewer increases in the future• Salary compression with the next grade

• Lowered to take into account overtime costs• Employee will “earn back” the full salary through anticipated overtime• But what if overtime isn’t worked?• What about lowered rate for PTO and holidays?• Pay decrease could cause loss in employee morale

• Communications/employee relations plan is key


First Steps of the Plan—CAUTION!

Reclassified employees become NONEXEMPT employees

• This means that, regardless of the method of pay, they are subject to the same wage & hour rules as other non-exempt employees:• Must maintain accurate time records (even if no OT worked)• Must ensure proper control of employee work, such as:

• Off-the-clock• Meal and rest breaks• Travel time• Remote access

• Must pay OT premium for hours work in excess of 40/week• No method of compensation permits an employer to avoid keeping accurate time records

for non-exempt employees


First Steps of the Plan—Restructuring

• To justify increased exempt employee salaries, some jobs will need to take on more responsibilities

• To avoid reclassification, some jobs will need to shed nonexempt responsibilities

• Some jobs will need to be split into two or more roles because overtime costs would be too great

• Some jobs and employees will necessarily be phased out• As predicted by many critics of the new rule, some businesses will need to

close locations, departments, and other aspects of their operations

The Risks Created By The New Rules


A Brief History of Wage & Hour Risk

• FLSA – 1938 law that hasn’t kept pace with changing times

• Vague and ambiguous text of the statute and DOL regulations has created uncertainty, fueled by inconsistent court decisions

• Low standard for conditional certification often gives plaintiffs leverage for early settlements

• Large high profile settlements/verdicts have provided “windfall” fees and attracted more lawyers to file lawsuits

• 2004 amendments provided increased media attention to the FLSA and led to sharp increase in lawsuits


FLSA Cases: Trending Up


A Plaintiffs’ Bar Watching Patiently For Opportunities

• As has been reported—and as are already seeing from recent demand letters—members of the plaintiffs’ bar are ready to pursue new clients’ claims generated because of these new rules by:• Exempt employees whose pay is not raised who think it should be• Exempt employees whose pay is raised, but who think they should be reclassified as

non-exempt/overtime-eligible• Reclassified employees who question why they weren’t classified as nonexempt, and

paid overtime, all along• Reclassified employees who think they were wrongly “demoted”• Reclassified employees to alleged off-the-clock work, missed meal/rest breaks, or

improperly calculated overtime pay


Each Crucial Business Decision Point Presents Risk

• Determination of who will be paid at a greater salary level

• Reclassification of employees to nonexempt status

• Restructuring of jobs and operations

• Elimination of positions

• Contraction of operations


The Risk of Contagion Is Severe

• Even for members of industries that already pay most exempt employees more than the new threshold, risk will arise from:

• Press coverage inspiring employees and lawyers to seek avenues to recover damages

• More lawyers who become aware of and educated about how to file FLSA claims

• Marketplace chatter that leads to “me-too” concerns among a wide variety of employees

A Careful PlanRISK MITIGATION:


Careful Execution and Communications Strategies Are Crucial

• Before you take your first steps:• Identify stakeholders and champions who can help define and reach endgame

objectives• Develop a communications plan to engage key players• Determine your process for achieving objectives before December 1

• After you have made the important business decisions about whose pay will increase, who will be reclassified, and what roles / operations might need to be restructured:• Develop a detailed implementation and communications strategy


Workflow Chart


Exempt Salary Increase Process Map


Is This Really Happening?

• Possibility of Litigation• Congressional Review Act• Appropriations Riders• Protecting Workplace Advancement and Opportunity Act• New Administration

Changes to the Fair Labor Standards Act

Legal Disclaimer• The information provided herein is the property of Kronos Incorporated and is confidential. All product

information is being provided for informational purposes only, and any product information pertaining to functionality that is not currently available (“forward-looking product information”) is provided as a general outline of the future direction of our products, and, as such, is subject to change. Any forward-looking product information is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The adoption, development and timing of release of any feature or functionality described in any forward-looking product information set forth herein remain at all times at the sole discretion of Kronos.

• All information pertaining to the any legal requirement discussed herein is provided for informational purposes only and not for the purpose of providing legal advice. The application of specific laws, regulations or court decisions may affect certain organizations in a manner that is materially different than as discussed or contemplated herein, and, therefore, the application of any specific law, regulation or court decision should be reviewed carefully with a qualified attorney.

Executive Summary• Situation:

− FLSA changes will impact an organization’s workforce management strategy

− Organizations need to balance business needs, compliance risk, productivity, and labor costs when building their workforce strategy

• Complication:− Compliance and productivity challenges with manual workforce

management environments

FLSA Overtime Changes Finalized

Today December 1, 2016If an employee earns less than

$455 per week or $23,600 annually

$913 per week or $47,476 annually

Then They are eligible for overtime pay

They are eligible for overtime pay

Employees who make up to $47,476 per year will be eligible for overtime.

Effective date: December 1, 2016Automatic salary threshold increase every three years

!

Create a Cross-Functional Team to Define Your Strategy

CrossFunctional

Team

Finance& IT

HR Leadership

Operations/Business

Units

LegalExecutiveTeam

Assess Impact, Build StrategyDo you understand the details of the regulation?

Who is impacted? How many hours do the employees currently work?

How will you track the time of impacted employees?

What is your Strategy?

Hire more employees? Full-time or part-time?

Pay overtime? At what rate?

Increase salaries?

Reduce hours?

What is the budget impact?

What is the impact to your business metrics?

What is the impact to your Kronos system?

Workforce Management Strategy

LABOR COST

COMPLIANCE PRODUCTIVITY

ENGAGEMENT

RECRUITMENT

BUSINESS GOALS TALENT

UNION RULES

Potential Unintended ConsequencesThe Workforce Institute

• 81% of employees work outside of standard hours

• 63% of full-time salaried employees admit they would work off the clock, even if it’s against policies

• Causes:− Long-term career goals− Urgent deadlines− Too much work− Always connected = always working

Implementation Strategy

Adjust employee

s and rules

Optimize schedules

Manage overtime

hoursAudit and

report

Adjust Employees and Rules

• Ease administration simply and efficiently through the use of employee profiles− Adjust employees to non-exempt− Update pay rules for employees− Calculate new overtime rates

Effectively manage, monitor, and adjust.

Optimizing Schedules

• Build a best-fit schedule, automatically − Business needs− Compliance− Employee requirements

• Flag potential compliance issues proactively

Build the best-fit schedule based on the overall business and compliance strategy.

– Union regulations– FLSA / ACA

Manage Overtime – Anywhere

• Automate and interpret time calculations centrally

• Receive notifications of potential compliance issues

• Capture time including remote work, travel, meal, and breaks via mobile

• Enable employees to attest to time

• Automate time from punch to payroll

Simplify the administration and enforcement of policies.

Audit and Report – Better Insight

• Audit all actions

• Historical and real-time reports enable managers to proactively manage overtime

• Dashboards provide insight into overtime trends

Understand when employees are projected to cross overtime thresholds.

What Should You Do Right Now?

• Form Cross-Functional Team to develop business strategy

• Understand impact− Determine employees impacted− Immediately start to track hours worked to allow you to evaluate options for

changes to the business and workforce strategy

• Take action− Finalize policy and communicate changes to the organization− Change Human Capital Management systems to support compliance

FLSA Compliance TimelineDOL EXEMPTION RULE CHANGE

321

Cross-Functional Team• HR, Finance, Operations, IT, Legal• Kronos assessment support

Impact Assessment• Customer: analyze salary

& staffing• Customer: workforce

& operations

Strategy• Who gets greater salary levels• Reclass to nonexempt Status• Jobs & operations restructuring

ImplementationSystem Assessment

• Assess impact to your Kronos system • Design changes• Create implementation plan & budget• Kronos Consulting Service

Configure• Make system changes• Unit test changes• Support users acceptance & go live• Separate Kronos T&M engagement

Kronos/Customer: June-July

Customer: Aug-Sept

Both: Oct-Nov

Effective Dec 1FLSA

Requirements

Kronos.com – Compliance Resource Center

Lynne Levy: [email protected] ; @lynnetlevy

Patrick Bannon: [email protected]

QUESTIONS?

CJ5

CJ5 Using this slide for Q&A - getting Lynne and Patricks' twitter handles and emails now, if you want to make placeholdersCrawford, Jill, 7/13/2016

Resources

• http://www.flsa.com/coverage.html

• https://www.dol.gov/whd/overtime/final2016/

• https://www.shrm.org/legalissues/federalresources/pages/flsa-overtime-rule-infographic.aspx

• http://blog.dol.gov/2016/05/18/plenty-of-options-with-new-overtime-rule/

• How Does the New Overtime Rule Affect Your Mobile Device Policy?

• http://www.kronos.com/compliance-resource-center.aspx

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Disclaimers *This webinar is designed to provide accurate and authoritative information about the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services.

*This webinar provides general information only and does not constitute legal advice. No attorney-client relationship has been created. If legal advice or other expert assistance is required, the services of a competent professional should be sought. We recommend that you consult with qualified local counsel familiar with your specific situation before taking any action.

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