3 Things to Consider When Handling Overtime Pay

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3 Things to Consider When Handling Overtime Pay

As is the case with many employment related statutes, exactly how and what your organization must adhere to depends largely on an often complex combination of state and federal law, as well as any employer specific policies. Overtime pay is certainly no exception. Overtime actually functions much like minimum wage in that the employer must pay to the higher standard (either state or federal), i.e. the standard that results in the largest pay out to the employee working overtime hours.
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Highly Compensated Employee Exemption: The Other FLSA Exemption

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If you are like most employers in Northeast Ohio, as soon as the FLSA Final Rule was published back in May, your first step was to take a look at those employees on your payroll that make less than $47,476.

Embarking on this fact finding mission is a great place to start, but while employers are scanning their payroll records, there are two other dollar figures that are also worth a quick look to ensure full compliance with the Final Rule come December 1, 2016.

Although far less common than the Standard Salary Level change for Executive, Administrative, and Professional employees (EAP), employers will also need to assess the exempt status of any employees that fall under the “Highly Compensated Employee” (HCE) exemption.

How do I know if I have a “Highly Compensated Employee” (HCE)?

Currently, the dollar amount for the HCE is set at $100,000 annually, but under the new regulations this figure is increasing to $134,004 annually. However, as with the Standard Exemption, compensation alone does not determine the appropriate classification for an employee. The primary difference between the EAP exemption and the HCE exemption, apart from the salary cap, is the duties test itself.

For the HCE’s a “minimal duties” test is applied, which states—per the DOL’s own fact sheet on HCEs—that the minimum duties test is met if, “the employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee”.

While you may have many employees that meet the salary threshold, you may not have any employees that need to be categorized as HCEs. Instead, based on the job duties assigned to most of your employees making over the HCE salary threshold, these employees probably meet more than enough of the duties test to qualify as exempt under the EAP exemption. Again, given the six-figure salary number, in these cases, these individuals are probably more appropriately classified as “Executive” and therefore already fall under the EAP exemption.

What does the new Final Rule change for my HCEs?

Changes to employee classification resulting from the new compensation assessment for HCEs are likely mostly administrative in nature, but should still be reviewed in order to remain compliant. The only major change is the increased figure of $134,004. Also, keep in mind that these employees will also need to meet the new Standard Exemption level of $913 weekly in base salary (this can be in the form of either a set salary or fee per the regulations).

The requirement to meet the Standard Exemption level is no different, but the dollar amount itself has increased to fit the Final Rule. The rest, a minimum of $86,528 to be exact, would then come in the form of commissions and other nondiscretionary compensation/bonuses (also the same rule as before).

In addition, the HCE threshold will automatically update every three years to a level that meets the 90th percentile of annual earnings of full-time salaried workers nationally.

So who does this really impact?

Per initial estimates the changes to the HCE exemption will impact about 36,000 employees (in contrast an estimated 4.6 million workers will be impacted by the change to the Standard Exemption Salary increase) Again, the key numbers to look at here are any employees that fall between $100,000 and $134,004 annually.

As an example, if an exempt employee is currently making $120,000 annually and upon review of their job duties, does NOT fully meet the duties test for EAP employees, (and the employer chose not to increase their compensation to meet the new $134,004 threshold or restructure the makeup of their total compensation package to get to this number—there are lots of options!) then this individual’s status would need to change to non-exempt.

Disclaimer: ERC does not provide qualified legal opinions. Information obtained through the site and services should not be relied upon or considered a substitute for legal advice. The information ERC provides is for general employer use and not necessarily for individual application. ERC recommends that you consult legal counsel for workplace matters.

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Begin the Conversation Now: Developing an FLSA Communication Plan

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Begin the Conversation Now: Developing an FLSA Communication Plan

The U.S. Department of Labor passed legislation regarding the FLSA Overtime Rule in 2016. This new ruling, which established a new salary threshold, effective December 1, 2016, prompts many organizations to reevaluate and update their policies and procedures in relation to employees who are currently classified as exempt.


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Questions Answered About the Proposed FLSA Changes: Overtime Rule

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changing from non-exempt to exempt proposed flsa changes flsa proposed changes

Accurately categorizing your employees as “exempt” or “non-exempt” from the Fair Labor Standards Act (FLSA) sounds like a fairly straightforward task. But a closer look at the finer details of the FLSA can quickly turn an easy yes/no question into a complex, and somewhat subjective, analysis or job duties, titles, and compensation.

According to the U.S. Department of Labor’s (DOL) Wage & Hour Division, the current administration is looking to, “simplify the overtime rules for employers and workers alike,” specifically in the area of white collar exemptions, and has recently completed a comment period for new set of proposed overtime rules.

Although it is up for debate whether or not the proposed rules have achieved this goal of simplification, employers need to be aware of what these changes are and begin to prepare themselves for 2016 when some version of these rules are likely to be implemented.

What is changing (more than likely)?

The salary level required to be classified as an exempt employee for both standard and Highly Compensated Employees (HCEs) will increase. The existing standard salary threshold to qualify as exempt, is set at $455 per week. The existing HCE threshold is $100,000. The proposed new rule sets the threshold for both categories based on average weekly earnings for full-time salaried workers. For standard salaried employees the 40th percentile mark will be used and for HCEs, the 90th percentile will be used. In terms of what these percentiles mean for setting actual dollar amounts, based on 2016 projections from the DOL the new thresholds will be $970 in average weekly earnings for the standard level and $122,148 annually for HCEs.

The bottom line: The specific dollar figures cited in the proposed language may be adjusted in the final rule, but in short, the salary amounts required to be considered exempt from the white collar overtime rules are going up in 2016.

Both salary levels (standard & HCE) will be scheduled to increase on an annual basis. The numbers currently on the books have not changed since the last set of rule changes in 2004. The latest iteration of the white-collar exemption language will increase annually in one of two ways, either: (1) attaching directly to the 40th (standard) and 90th (HCE) percentiles of earnings for full-time salaried employees or (2) adjusting both levels based on inflation (CPI-U).

The bottom line: Instead of going through the rulemaking process to increase the exemption thresholds, they will go up on an annual basis—based on what statistic is still to be determined.

What else was being considered as part of the proposed rulemaking during the comment period?

The DOL was looking for comments on two additional items, but is not planning to make regulatory changes based on this feedback. (1) The so called “duty test”, which is the next step in determining an employee’s exempt status, was also up for discussion. However, instead of implementing wholesale, official regulatory changes, the DOL was looking for additional examples of job titles and practical job duties that could be used as guidance for determining exemption status. (2) In addition, they were gathering opinions about whether or not nondiscretionary bonuses can/should be factored into the average weekly earnings of the standard salary calculation.

The bottom line: The DOL wants to gauge if the “duty test” is working as it should and provide more practical guidance to make it more objective. However, they don’t plan to incorporate any official regulatory changes regarding “duties” into the final rule at this time.

What can employers do to prepare?

Until the final rule is announced, the key for employers will be to begin gathering the information necessary to apply the new test once it is known. Not only will this head off any current misclassification that you may uncover in the process, but it also situates employers to act as soon as the DOL releases the final language.

First and foremost, employers may want to perform an internal audit of their job titles and descriptions to ensure that they are appropriately classified as exempt or non-exempt. While employers always make sure jobs are classified correctly at the outset, these duties can look very different a few years down the road. As individuals and job duties evolve depending on the skill set of the employee, the needs of the organization, or even changes to technology, HR isn’t always kept apprised of these changes in a timely fashion.

Taking stock of exactly what duties are being performed and making any necessary changes to job descriptions on a fairly regular basis can help prevent misclassification. In the case of the proposed changes to the FLSA, going through this internal review process is particularly important for any non-exempt employees making more than the current $23,600 figure, but less than the new threshold.

The bottom line: Be prepared. There is some down time between the close of the comment period earlier this month and the expected announcement of the final rule in 2016. Make use of this time to gather the job duty information now, so you can act promptly and efficiently when the time comes.
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The 5 Most Common FLSA Exemptions

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The 5 Most Common FLSA Exemptions

The most common FLSA exemptions are white collar exemptions. They can be broken down into five main categories, including:

  1. Executive
  2. Administrative
  3. Professional
  4. Outside sales
  5. Computer

In order for an exemption to apply, an employee’s specific job duties and salary must meet all of the requirements of the Department of Labor’s regulations.

Here is how the FLSA defines exemptions for these various duties.

Executive

Executive

 

An employee is exempt from the FLSA as an executive if they regularly perform all of the following:

  1. The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;
  2. The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  3. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
  4. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative

Administrative

 

This exemption is for employees whose main duties involve the support of the business, such as human resource staff, public relations, payroll and accounting. Generally, administrative employees do not directly produce what the company sells; however, they are at a much higher level than those employees performing clerical work.

The FLSA defines exempt administrative duties as follows:

  1. The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  2. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  3. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional

Professional

 

Exempt professional employees include lawyers, physicians, teachers, architects, registered nurses, and other employees who perform work that requires advanced education or training. These typically are intellectual jobs, require specialized education and involve the use of discretion and judgment. 

This exemption also includes creative professionals such as writers, journalists, actors and musicians. In general, such jobs require imagination and some unique combination to the employer. 

  1. The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  2. The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
  3. The advanced knowledge must be in a field of science or learning; and
  4. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Outside Sales

Outside Sales

 

To qualify for the outside sales employee exemption, all of the following tests must be met:

  1. The employee's primary duty is to make sales or the employee's primary duty is to obtain orders or contracts for services or contracts for the use of facilities for which clients or customers pay
  1. The employee must be customarily and regularly engaged away from the employers place or places of business.

The salary requirements of the regulation do not apply to the outside sales exemption. An employee who does not satisfy the requirements of the outside sales exemption may still qualify as an exempt employee under one of the other exemptions allow

Computer

Computer

 

A computer professional can be paid on a salaried or hourly basis, but must receive compensation equal to or greater than:

  • $455 per week if paid on a salary basis (annual salary of $23,660); or,
  • $27.63 per hour, if paid for each hour worked.

Job titles do not determine the exemption status. In order for this exemption to apply, an employee’s specific job duties and compensation must meet all the requirements of the FLSAs regulations. However, the computer exemption does state that an employee must be employed as a:

  • Computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field; and,
  • The employee’s primary duty must consist of:
    1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
    2. The 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;
    3. The design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
    4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

If you have any additional questions regarding common FLSA exemptions, and are an ERC Member, contact our HR Help Desk or visit the U.S. Department of Labor (DOL) FLSA page at http://www.dol.gov/whd/flsa/.

IMPORTANT: By providing you with information that may be contained in this article, the Employers Resource Council (ERC) is not providing a qualified legal opinion concerning any particular human resource issue. As such, research information that ERC provides to its members should not be relied upon or considered a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application. We also recommend that you consult your legal counsel regarding workplace matters when and if appropriate.

How to Determine if a Job is Exempt or Non-Exempt

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exemptvsnonexemptemployees

The terms non-exempt and exempt can cause a lot of confusion for workers and employers. Exemption status determines if you receive overtime pay for working more than 40 hours in a work week. The exemptions are governed by the Fair Labors Standard Act (FLSA).

Non-exempt 

Non-exempt employees must be paid at least the minimum wage and overtime pay for any work performed over 40 hours worked in a week. This time must be paid at a rate of time and one half of their regular pay rate for each hour of overtime.

Exempt

Exempt employees are not granted the same protection under the FLSA, therefore they are paid the same dollar amount regardless of the number of hours worked in a week. Exemptions from the overtime requirements of the FLSA are just that — exceptions to the rule. They are very narrowly construed, and as the employer, you will always bear the burden of proving that you have correctly classified an employee as exempt. When in doubt on the classification of a job, it is best to make them non-exempt.

For most professions, an individual is an exempt employee if he or she meets all of the following three tests: 

  1. Is paid at least $23,000 per year ($455 per week)
  2. Is paid on a salary basis
  3. Performs exempt job duties

But how do you know if the individual performs exempt duties?  As a general rule, exempt employees tend to perform relatively high-level duties with respect to the company’s overall operations. The most common FLSA exemptions are white collar exemptions and are broken down into five main categories, including: 

  1. Executive
  2. Administrative
  3. Professional
  4. Outside sales
  5. Computer

Other issues

There are also some other concerns to consider when determining non-exempt and exempt status.

  • Time off. Although there are exceptions, it’s usually illegal to give non-exempt employees time off instead of paying them overtime.
  • Child labor. Federal and state laws include special requirements to protect workers under the age of 18. These laws can affect the type of work, wages, and hours that an employee can complete.
  • Breaks. Employers need to make sure they follow federal and state law requirements regarding breaks, including meal breaks, for their employees.

If you have any additional questions regarding non-exempt and exempt employees, and are an ERC Member, contact our HR Help Desk or visit the U.S. Department of Labor (DOL) FLSA page at http://www.dol.gov/whd/flsa/.


IMPORTANT: By providing you with information that may be contained in this article, the Employers Resource Council (ERC) is not providing a qualified legal opinion concerning any particular human resource issue. As such, research information that ERC provides to its members should not be relied upon or considered a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application.  We also recommend that you consult your legal counsel regarding workplace matters when and if appropriate.

 

5 Things Non-Exempt Employees Must Be Paid For Under FLSA

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Under the Fair Labor Standard Act (FLSA), there are certain activities beyond normal work duties that are considered work time (otherwise known as "working hours") that must be paid or "compensable" for covered employees. These include waiting/on-call time; lactation breaks; rest and meal periods; lectures, trainings, and meetings; and travel and are described below.

5 Things Non-Exempt Employees Must be Paid for Under FLSA

1. Waiting/On-Call Time

Whether waiting/on-call time should be compensable depends on whether an employee is engaged to wait or waiting to be engaged. If the employee is engaged to wait or on call for work on the employer's premises and is restricted in activities, he/she should be paid. If the employee is waiting to be engaged, this time is not considered work time and is not compensable.
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