The Simplest Route to Complexity: Understanding the FLSA Over>me Revisions September 29, 2016 Healthcare Financial Management Associa>on West Virginia Chapter Morgantown, West Virginia Rodney L. Bean Steptoe & Johnson PLLC 1085 Van Voorhis Road, Ste 400 P.O. Box 1616 Morgantown, WV 26507-1616 (304) 598-8140 [email protected]
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TheSimplestRoutetoComplexity:UnderstandingtheFLSAOver>meRevisions
September29,2016HealthcareFinancialManagementAssocia>on
WestVirginiaChapterMorgantown,WestVirginia
RodneyL.BeanSteptoe&JohnsonPLLC1085VanVoorhisRoad,Ste400P.O.Box1616Morgantown,WV26507-1616(304)[email protected]
ExecuOveSummary
• RevisiontosalarylevelrulesunderFairLaborStandardsAct• Willmorethandoublethesalarylevelrequiredformost“whitecollar”exempOons• NewrulesareeffecOveonDecember1,2016
Timeline
• History– March,2014:PresidentObamadirectedDOLtoreviseandsimplifytheoverOmeregulaOons
– July6,2015:DOLissuedtheproposedrule
– September4,2015:Commentperiodcloses.DOL-record300,000commentswerefiled
– May18,2016:Finalrulepublished
ContextofChange
• Changeaffects“whitecollar”exempOons– CompleteminimumwageandoverOmeexempOonsforbonafideexecuOve,administraOve,learnedprofessional,creaOveprofessional,outsidesales,andsomecomputeremployees
QuickReview
• ThreeTestsforExempOon– SalaryBasis– SalaryLevel
• Salarybasisandleveltestsdonotapplytodoctors,lawyers,teachers,oroutsidesalesemployees• Computeremployeescanbepaidhourly($27.63)
– JobDuOes
SimplificaOon
• Thesimplestwaytosimplifytherules– Nochangestosalarybasistest– NochangestotheduOestests
• Nochangeto“primaryduty”definiOon
– Changesonlythesalaryleveltest• NochangeaffecOngdoctors,lawyers,teachers,outsidesales
SalaryLevelChange
• Newminimumsalarylevel– $913perweek($47,476annualized)
• Morethandoublethecurrent$455perweek($23,660annualized)• ReducedfromDOL’sproposed$970perweek($50,440annualized)
– Setat40thpercenOleoffull-Omenon-hourlypaidemployeesinthelowestwagecensusregion(theSouth)
SalaryLevelChange
• HighlycompensatedemployeeexempOon– Salarylevelwillincreasefrom$100,000peryearto$134,000peryear• Higherthanthe$122,148peryearinproposedregulaOons
– Setatthe90thpercenOleofearningsoffull-OmesalariedworkersnaOonally
SalaryLevelChange
• Remember–SalaryLevelisjustonethirdofthetestforexemptstatus– SOllmustmeetsalarybasistest– SOllmustmeetcomplexduOestest
• ExecuOve• AdministraOve• Professional• Certaincomputeremployees• OutsideSales
BonusesandIncenOves
• BonusesandIncenOvePayments– Changefromcurrentlaw– EmployerscanusenondiscreOonarybonusesandincenOvepaymentsandcommissionstosaOsfyupto10percentoftherequiredsalarylevel• Mustbepaidatleastquarterly• Catch-upprovisionwillallowemployerstomakeupdifferenceifbonuses/commissionsfallshortoftherequiredsalarylevel
BonusesandIncenOves
• Onlynon-discreOonarybonusescount– Notannouncedinadvance– Notpaidaccordingtoaformula– Non-discreOonarybonusesmustberolledintoregularrate– Becarefulaboutbonusespayabletoemployees“ingoodstanding”– PerformancemilestonesshouldbeobjecOvelyachievable
• Annualbonusesdon’tcount– Bonusesmustbepaidatleastquarterly
BonusesandIncenOves
• Applyingthecatch-upprovision– Employermustpaytheexemptemployeeasalaryofatleast90%oftheminimumsalarylevelforeachworkweek($821.70)
– Attheendofthequarter,ifthesalaryplusallnon-discreOonarybonuses,incenOvepayments,commissionsdonotequalatleast$11,869(25percentof$47,476),employermustmakeuptheshorkallinthefirstpayperiodofnextquarter• RequiresaquickcalculaOon• Whataboutanemployeewholeavesinthemiddleofthequarter?
AutomaOcUpdaOng
• AutomaOcUpdaOng– SalarylevelsforexempOonswillbeupdatedeverythreeyears• ProposedregulaOonswouldhavechangedthemannually• U.S.ChamberofCommerceischallengingthisprovision
– DOLwillpublishupdatedratesatleast150daysbeforeeffecOvedate
– FirstautomaOcrevisioneffecOveJanuary1,2020
AutomaOcUpdaOng
• AutomaOcUpdaOng– UpdateswillbebasedondatafromQ2oftheprecedingyear
– EffectofnewregulaOonsthisyearcouldcauseabigjumpinthesalarylevelin2020• Increasetonon-hourlypayoverallwillskewdataupwards• Currentlower-wageexemptworkerswillbepushedoutofthedatasetbecausetheywillnowbenon-exempt
EffecOveDate
• ChangebecomeseffecOveonDecember1• WestVirginialawrequiresadvancenoOceofchangesinpayrate– “Whenanemployerchangesanemployee’srateofpay...theemployershallfurnishawrinennoOcetotheemployeeatleast1fullpayperiodpriortotheeffecOvedateofthechange.”• W.Va.C.S.R.§42-5-4.2.
EffecOveDate
• Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct• IntroducedinSenateonMarch17,2016
– CongressionalReviewAct– LiOgaOon– Lasthope?
EffecOveDate
• Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct• IntroducedinSenateonMarch17,2016
– CongressionalReviewAct– LiOgaOon– Lasthope?
EffecOveDate
• Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct• IntroducedinSenateonMarch17,2016
– CongressionalReviewAct– LiOgaOon– Lasthope?
EffecOveDate
• Soisthisreallygoingtohappen?– ProtecOngWorkplaceAdvancementandOpportunityAct• IntroducedinSenateonMarch17,2016
– CongressionalReviewAct– LiOgaOon– Lasthope?
EffecOveDate
• Lasthope?"Wehavetoaddresstheissuesofover-taxaOonandover-regulaOonandthelackofaccesstocreditmarketstogetoursmallbusinessownersthrivingagain.Rollingbacktheover>meregula>onisjustoneexampleofthemanyregula>onsthatneedtobeaddressedtodothat.Wewouldlovetoseeadelayoracarve-outofsortsforoursmallbusinessowners."
DonaldTrump,Circa(Aug.12,2016)
DOLNon-EnforcementPolicy
• DOLNon-EnforcementPolicy– Time-limitednon-enforcementpolicyforprovidersofMedicaid-fundedservicesforindividualswithintellectualordevelopmentaldisabiliOesinresidenOalhomesandfaciliOeswith15orfewerbeds
– DOLwillnotenforcethenewsalarylevelsunOlMarch17,2019
– ButBEWARE...
DOLNon-EnforcementPolicy
• Non-EnforcementPolicyonlyappliestoacOonbytheDOLitself– ButDOLacOonisjustonepathtoFLSAenforcement.• StatesandprivateciOzenscansOllsuetoenforcethefinalruleduringtheDOL’snon-enforcementwindow
– SafestrouteistocomplybyDecember1
AMajorChange
• Broadeffect– 4.2millionexemptemployeeswillautomaOcallybecomenon-exempt
– 5.7millionaddiOonalworkersnowclassifiedasexemptbutinagrayareawillbereclassifiedasnon-exempt
– Alltold,willaffectmorethan14percentoftheAmericanworkforceduringfiscalyear2017
AMajorChange
• BigCosts– Willcostemployersabout$1.2billionayearin“transferofincomebetweenemployersandemployeesintheformofhigherearnings”
– AddiOonally,employerswillspendabout$295millionin“regulatoryfamiliarizaOon,adjustmentcosts,andmanagerialcosts”
AMajorChange
• Mostaffectedindustries– Professionalandtechnicalservices– Healthcare– Finance– Retail– Insurance– EducaOon
PreparingforChange
• CompliancePlan– Getstartednow!– Thisinvolvesmath,andmathishard.
PreparingforChange
• CompliancePlan– Figureoutwhowillneedtobereclassified– Trainyourmanagersandnewnon-exempts– Reviewyourpaypolicies– Considerunintendedconsequences
PreparingforChange
1. Figureoutwhowillneedtobereclassified• Makealistofexemptjobspaidlessthan$47,476• Whatwillyoudowithexemptemployeesclosetothesalarythreshold?– Raisetheirsalarytothenewlevel?– Convertthemtonon-exemptandconOnuepayingthemasalary?» WillthesalarybelowertoaccountforoverOme?» HowwilloverOmebecalculated(dividesalaryby40;dividesalarybyactualhoursworked;fluctuaOngworkweek)
– Convertthemtonon-exemptandpaythemonanhourlybasis?
PreparingforChange
• DoyouhaveasenseofhowmuchOmetheyareactuallyworking?• WillyouneedtolimithoursorhireaddiOonalworkers?• IfyouhaveanaccuratesenseoftheamountofOmenecessaryforthework,youcandesignacompensaOonstructurethatwillcloselyreplicatethesalaryofformerlyexemptemployees
PreparingforChange
• EXAMPLE–Possiblestrategiesforcurrentlyexempthospitalaccountantearning$42,000annualsalaryandnobonusorcommission.– Employeeworks45hoursinaworkweek– Works52weeksperyear– Primarydutyisexemptwork
PreparingforChange
• OpOon1:Increasetheemployee’ssalaryby$5,476peryear.Employeeremainsexempt.
• OpOon2:Reclassifytheemployeeasnon-exemptatcurrentsalary.OverOmepaywilladd$7,875inlaborcosts.
• OpOon3:Reclassifytheemployeetonon-exemptwithhourlyrateof$17.WiththeexpectedoverOme,earningsshouldbeaboutthesame.
PreparingforChange
• Cost-NeutralFormula(forOpOon3)– Weeklysalary/(40+(OTHoursx1.5))– (42,000/52)/(40+(5x1.5))– 807.69/47.5– $17.00
– Source:DOL’s2003NPRM(Preamble)(68Fed.Reg.15576)
PreparingforChange
• ThisisagoodOmetorevisejobdescripOons– DuOesmaner,notOtles– DravthejobdescripOonforexemptposiOonstoshowthattheposiOonisperformingexemptwork
PreparingforChange
• ThisalsoisagoodOmeforajobduOesreview.– Weallhaveemployeesinthegrayarea– Regulatorychangeprovidesarareopportunitytomakechangeswithoutshiningalightonthereason
PreparingforChange
2. Trainyourmanagersandnewnon-exempts• Rememberalltheaddedrequirementsthatcomewithnon-exemptemployees• YouwillneedtotrainformerlyexemptemployeeshowtokeeptrackoftheirOme• Youwillneedtotrainnewlynon-exemptmanagerswhoareusedtoansweringemailsatallhoursthattheycan’tdothat,oratleastmustaccountfortheirOme• Youwillneedtoeducatenewlynon-exemptonwageandhourpoliciesthatmightapplytotheminalessflexiblemanner
PreparingforChange
3. ReviewPayPolicies• Considerhowyourpayandbenefitspolicieswillapplyto
yournewlynon-exemptemployees.– Benefitseligibility– Mobiledevices– TravelOme– Off-the-clockwork
PreparingforChange
4. PrepareforUnintendedConsequences• EmployeestatuspercepOon• ProducOveexemptswhomaybenon-producOvenon-exempts
That’sall,folks!
QuesOons?
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