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.

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

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Why Employee Handbooks Matter

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 Why Employee Handbooks Matter electronic employee handbook acknowledgement form

Employee handbooks first and foremost reserve and protect the rights of an employer.  In addition, they can help clarify expectations, facilitate better communication with employees, and can reduce risk related to litigation or unionization. As Merritt Bumpass, a partner in the Frantz Ward Labor and Employment Group said,

“An employer has a legal relationship with each of its employees. The crucial issue is what are the terms of that relationship, and the creation of a well written handbook is a very good way to establish clear and acceptable terms of that relationship.”

However, not all handbooks are created equal, and in order to maximize the impact of your organization’s handbook,  we spoke with the attorneys at Frantz Ward LLP, who gave a few suggestions for essential policies you should consider.

Essential Policies:

  • At will disclaimer
  • Equal Employment Opportunity (EEO)
  • Anti-harassment – including sexual and workplace harassment
  • NLRA disclaimer
  • Non-solicitation
  • Work rules/Discipline
  • Electronic communications
  • Employment status/Classification
  • Attendance/Tardiness
  • Family and Medical Leave
  • Personal/Non FMLA Leave
  • Military Leave
  • Firearms/Weapons
  • Drug free workplace/ Drug testing
  • Workplace injury/Illness
  • Employee Acknowledgement Form

Additional Policies to Consider Including:

  • Welcome statement/Introduction
  • Description of benefits
  • Hours/Work schedule/Lunch/Breaks
  • Timekeeping
  • Employee benefits
  • Dress code
  • Reference requests
  • Updating personnel information
  • Access to personnel records
  • Employee suggestions
  • Continued education
  • Emergencies
  • Business reimbursement
  • Travel
  • Performance evaluations
  • Promotions/Transfers
  • Layoff/Recall
  • Payroll
  • Industry specific regulations
  • Reasonable accommodations
  • Employee complaints
  • Termination of employment/Resignation
  • Non-Fraternization/Dating/Personal relationships including relatives
  • Conflict of interest
  • Receiving/Receipt of gifts
  • Cell phones/Electronic devices while driving – Cell phones/Electronic devices at work
  • Smoking and use of tobacco
  • Working from home

Handbooks are not a one-size-fits-all. These are just some examples of sample policies that could be added to your handbook. All handbooks should be reviewed by legal counsel for compliance with federal and state laws and regulations–and should be modified to fit the organizations culture, industry and practices. If you are a ERC Member, contact the HR Help Desk for additional information on sample handbook policies.

Frantz Ward LLP is an ERC Partner and offers a Litigation Prevention Plan (LPP) that helps ERC members with their annual employment law expenses. Not a member of ERC? See what our Membership has to offer.

Source: Employment Law 2015 guidelines, “What’s Cooking in Labor and Employment Law in 2015,” Frantz Ward LLP.

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.

This document is intended to provide general information about legal developments, not legal advice. Receipt of this information does not create an attorney-client relationship with Frantz Ward LLP.

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What is Lean Manufacturing?

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Lean Method and Six Sigma: What Is The Difference and Which Do You Need?

Lean Manufacturing concepts eliminate wasteful practices while delivering increased value to the customer, but what does that really mean? We spoke with Rick Bohan, training consultant for ERC, about what lean manufacturing is and the importance of it.

Lean manufacturing can be described differently depending on who you ask. It is a concept understood by many yet lacks an indisputable description. Below discusses a few of the different ways lean manufacturing is described.


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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/.

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.

HR, compliance, termination, or compensation questions?

ERC has a team of HR Help Desk Advisors to provide timely and trusted answers.

Contact the Help Desk

Yelling at Co-Workers and Employees: Is It Ok?

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employee conduct in the workplace Yelling at Co-Workers and Employees: Is It Ok?

Yelling; it’s a part of human communication. Sometimes it’s good and sometimes not. People yell for many different reasons. Maybe it’s to assert themselves over others, or to make their presence known. Maybe they want to incite confrontation or satisfy an ego.

However, what if this is a common practice at your workplace? With any organization, employees at all levels of the business are expected to treat each other with respect. The success of your business heavily depends on co-operation and teamwork among all employees. It’s all about workplace civility.
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The Unique World of “Leave of Absence” Policies

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When an employee takes a “leave of absence," this time away from work can take many forms depending on the situation. From the Family & Medical Leave to Short Term Disability to jury duty to bereavement to military leave, these various policies and structures do share the common purpose of allowing an employee to take time away from work above and beyond vacation time or sick days, while also protecting the employer from potential abuses of these leave requests.

Ultimately, assuming that the employee meets and abides by all of the necessary requirements during the agreed upon leave of absence, the goal for both parties is that their job (or at least a similar position) will be waiting when they are ready and able to return to the workforce. But as is often the case in the world of Human Resources, the application of these laws and policies to the real life situations encountered in the workplace is less than clear cut.
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5 “High-Tech” Hiring Practices to Improve Your Talent Pool

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5 “High-Tech” Hiring Practices to Improve Your Talent Pool

1. Post a job opening on an online job board

Even if you don’t have a fancy applicant tracking system internally, almost all employers, 89% according to the 2013 ERC Hiring Practices Survey are putting their job postings up on some sort of external job board website. Most of these job boards are easy to navigate and should be a matter of simply inputting the information about the job opening and maybe a few pieces of information about your organization.

If the site allows applicants to fill out an online application or submit a resume through their site and funnel that onto you, make sure you review the process from an applicant’s standpoint as well. You don’t want to frustrate potential candidates with a process that your organization didn’t even create before they even get their resume into your email box!
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