Northeast Ohio Employers Predicting 3% Raises…Again?

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Northeast Ohio Employers Predicting 3% Raises…Again?

At the risk of sounding like a broken record, according to the ERC Wage & Salary Adjustment Survey, Northeast Ohio employers are predicting (drumroll please…) 3% overall pay adjustments for 2017! In case you haven’t been paying attention over the past decade, a 3% raise hardly comes as shocking news in the world of compensation and HR.
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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.

ERC Training provides FLSA Training which provides a high-level review of the law's elements and requirements.

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Questions Answered About the Proposed FLSA Changes: Overtime Rule

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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.

ERC Training provides FLSA Training which provides a high-level review of the law's elements and requirements.

Check Out this Course

What are the Hardest Positions to Fill in Northeast Ohio?

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A majority of Northeast Ohio organizations are planning to grow their businesses this year. Hiring projections from the 2015 ERC Hiring Trends & Practices Survey show that 84% of participating organizations have already hired one or more employees in 2015, and plan to make additional hires. Only 4% do not plan on hiring any employees this year. The 2015 ERC Hiring Trends and Practices Survey highlights hiring practices of 102 participating employers. 

While business growth is a top priority for these organizations, hiring and retaining top talent is also cited as the biggest challenge faced by NE Ohio employers. Specifically, employers report the following positions as the most challenging to fill:

Top Hard-to-Fill Positions in Northeast Ohio
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The ACA Today: Where it Stands and How it Affects Employers

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When it comes to the Affordable Care Act (ACA), a lot of organizations have questions. Professionals may feel an uncertainty with how everything will work or cost when it comes to their health care needs. We spoke with Robert Klonk, CEO of Oswald Companies, about the ACA.

Client concerns regarding the ACA

“The biggest concerns regarding the ACA would have to be reporting, uncertainty, and costs,” says Klonk. “Every employer is being hit with a deluge of reporting requirements that are forcing them to look at technology alternatives to be able to handle reporting. It doesn’t seem to matter if the company is a smaller or larger group, reporting is quite burdensome.”

The uncertainty comes from the constant delays and changes to the ACA that has been unfolding since 2010.  It is difficult to plan properly when they keep changing the rules.

“The number one issue clients are worried about is cost,” says Klonk. “There is a tremendous amount of cost being shifted to employer plans, and there doesn’t seem to be a timeline of when it will end. Employers are doing everything they can to try to control costs, but yet continue to get hit with additional ACA costs.” These additional costs ultimately then ultimately get pushed onto employees which creates affordability issues.

The winners and the losers of the ACA

After speaking with Klonk, it was clear that there are both winners and losers when it comes to the ACA.

“Obviously, there is a certain percentage of the uninsured population that are winners. Specifically, the population that was eligible for Medicaid that was not signed up before, especially with the expanded Medicaid and the states that did so, since they were able to get coverage under the expanded Medicaid now rules.”

Klonk says there was also a decent portion of uninsured people today that were able to go on the exchanges and receive subsidies. With over 85% of the policies issued today having received a subsidy of some set; and some of them being quite substantial, they would be an obvious winner of the ACA.

Others that would be grouped in this category include poor performing employer groups. Even though they may have high claims, especially the under 50 life groups that are community rated, they will see their costs go down slightly.

Also, the government is a winner, says Klonk. “The government has more control, and with more control comes more power. If we continue to go down this path, the government will be able to control healthcare far more than any of us are going to be comfortable with,” says Klonk.

But who are the losers in all of this? Klonk says it’s the majority of employers.

“There is too much cost shifting going from the individual marketplace to the employer based marketplace. Also, employees of these employers are sometimes bearing the brunt of these increases.  Individuals who still want individual coverage, but are not eligible for a subsidy on the exchange, have seen dramatic price increases for some of their polices,” says Klonk.

“These were relatively healthy individuals under the old standard and would be underwritten based on the risks they brought; and then be priced accordingly. These individuals who would receive a good price are now paying quite a bit more because there is no underwriting, so they pay the penalty for it.”

Community rating

Currently, community rating is in effect for groups of 2-50 employees. As of January 2016, unless it is delayed again, that law will be expanded and the small group definition will go to groups of 2-99.

“Community rating is not performance based, but is more like socialization,” says Klonk. “Community rating brings everybody together and tries to bring it to the median. So if you are a healthy, young, high-performing group that has embraced wellness and performance based medicine, by going in the community rated pool, you will get dinged quite dramatically.”

However, what about the unhealthy groups that haven’t done anything over the past couple of years?

“Some will to see their costs increase,” says Klonk. “But others do have a chance of actually having rates decrease, because community rating brings everything to the middle. So the incentives go away.”

Klonk says this is the reason why you see a lot of self-insured pools cropping up. They can avoid the community rating of ACA. He also says this particular area, as it relates to community rating, scares him the most going forward because it takes away incentives for employers to keep their employees healthy.

“Over the last 15 years, we have worked so hard to incorporate things like on-site wellness plans, and if you take that incentive away from employers, many of them will not do it anymore,” says Klonk. 

The impact insurance carriers will see with the ACA

There is quite a few things that will impact the carriers, depending on the type of carrier that it is.

“Most of them are introducing some type of narrow network, some more narrow than others,” says Klonk. “In certain areas, it’s not a bad offering if they can try to reduce costs there, but in other areas they are limiting access to a lot of good quality providers. One of the challenges is they’ve somewhat reduced the incentives for some carriers to control costs because they have limited the amount of profitability they can make.”  

This is one of the core elements of the ACA. The percentage of profits are limited to 15 to 20 percent, depending on which marketplace they are in.

“We counted on the carriers before to help us on Disease Management, and to help us in promoting wellness programs and to really work with us and the employers to try to control costs,” says Klonk. “Since that incentive with community rating is very challenging, and with the maximization on their profitability, it’s another area that I see diminishing for the carriers.”

However, Klonk says that financially, the carriers are doing fairly well right now.

“You’ve got the reinsurance fees subsidizing the exchange numbers, and with grandmothering in the small market space, as well as community rating, the carriers are able to pad their numbers a bit.  Although their profits have increased recently, I think they are going to get squeezed here as we go forward. You will see more costs being pushed to the carriers from the insurer fees through ACA, and it is going to challenge them a little bit.”

Klonk believes that many of them, conceptually, will change the way they do business years past to where they go forward and their focus isn’t on managing costs as much or managing the risk as much, but simply processing claims and being networks and claims processors, and technology platforms going forward.

“I can see some of that changing as the incentives in ACA go away from really managing risk and managing cost,” says Klonk.

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