new overtime rules are here your comprehensive action plan
TRANSCRIPT
www.blr.com or www.hrhero.com For CD and other purchasing information, contact customer service at: 800-727-5257 or E-mail: [email protected] © 2015 BLR ® and HR Hero® —Business & Legal Resources and HR Hero. All rights reserved. These materials may not be reproduced in part or in whole by any process without written permission.
BLR is recognized by SHRM to offer Professional Development Credits (PDCs) for the SHRM-CPSM or SHRM-SCPSM. For more information about certification or recertification, please visit the SHRM Certification website at www.shrm.org/certification.
New Overtime Rules Are Here: Your Comprehensive Action
Plan for Reducing Wage and Hour Violations
Tuesday, July 21, 2015 1:30 p.m. to 3:00 p.m. Eastern
12:30 p.m. to 2:00 p.m. Central 11:30 a.m. to 1:00 p.m. Mountain 10:30 a.m. to 12:00 p.m. Pacific
Presented by:
Doug Hass Franczek Radelet, P.C.
This program has been approved for 1.5 credit hours toward PHR and SPHR recertification through the Human Resource Certification Institute (HRCI). For more information about certification or recertification, please visit the HRCI website at www.hrci.org.
New Overtime Rules Are Here: Your Comprehensive Action Plan for Reducing Wage and Hour Violations
Presented by:
Doug HassFranczek Radelet, P.C.
July 21, 2015
www.franczek.com
2
About the Speaker: Doug
Practice Focuses:
– Wage and hour issues
– Business immigration and worksite enforcement
– Technology-related policies
– Telecommunications and high technology companies
20+ years in high tech industries
Twitter: @WageHourInsight
Web: http://www.wagehourinsights.com/
Doug HassLabor & EmploymentLaw Attorney
www.franczek.com
3Please Note:
Descriptions of the following laws and regulations are summaries, not legal advice, and should not be relied on at face value without
speaking with an attorney.
www.franczek.com
4
Agenda FLSA History What is Work Time? DOL Wage & Hour Division Administrator’s
Interpretation DOL’s Proposed FLSA Regulations
– Salary level– Other changes
EAP/“White Collar” Duties Test Changes: What to Expect
Avoiding Wage & Hour Violations under New FLSA Rules
www.franczek.com
5
History of FLSA
1938 Fair Labor Standards Act enacted by Congress
1949 DOL issued major revision to duties tests
1954 DOL issued last major revision to salary basis test
1975 DOL increased the salary level test
2004 DOL last increased the salary level, makes major revision to duties tests
2014 President Obama requests that DOL issue new regulations
2015 DOL proposes substantial increase in salary level, investigates changes to duties tests
www.franczek.com
6
Who Do New Regulations Target?– Primarily exempt employees
– “White collar” / EAP workers who are exempt from FLSA’s min wage, OT rules Executive
Administrative
Professional
“Highly Compensated”
– NOT: Non-exempt
Outside Sales
Computer Professionals
www.franczek.com
7
Who is Covered by the FLSA?– Nearly all workers
– DOL Administrator’s Interpretation (AI) released July 15, 2015
“[M]ost workers are employees under the FLSA’s broad definitions” of employment as “to suffer or permit to work.”
Lists supporting cases, disregards all contrary authority
Is the worker economically dependent?
www.franczek.com
8
“Economic Realities”AI uses same “economic realities” test, but broadens coverage of each factor:
1. Is the work an integral part of the employer’s business?2. Does the worker’s managerial skill affect the worker’s
opportunity for profit or loss?3. How does the worker’s relative investment compare to
the employer’s investment?4. Does the work performed require special skill and
initiative?5. Is the relationship between the worker and the employer
permanent or indefinite?6. What is the nature and degree of the employer’s control?
www.franczek.com
9
Factor 1: Integral to the Business
Is the work an integral part of the employer’s business?
– AI broadens this factor
– AI: Factor, “should always be analyzed” Some courts ignore it entirely
– Work performed is integral to the business, more likely worker is economically dependent Contractor cleaning office vs. “contractor” making
your widgets
www.franczek.com
10
Factor 2: Profit/Loss PotentialDoes the worker’s managerial skill affect the worker’s opportunity for profit or loss?
– AI narrows this factor
– AI: Rejects idea that working more/fewer hours equates to profit/loss opportunity
– AI: Elevates potential for loss to apparent requirement “[I]t is important not to overlook whether there is an
opportunity for loss, as a worker truly in business for him or herself faces the possibility of a loss.”
– No loss: economic dependence
www.franczek.com
11
Factor 3: Comparative Investments
How does the worker’s relative investment compare to the employer’s investment?
– AI broadens this factor
– 4th, 11th Circuits: Has worker invested significant sums into his or her business?
– AI: Must compare worker’s investment relative to employer’s
– AI: Without comparison, can’t determine economic dependence/independence
www.franczek.com
12
Factor 4: Skill/Initiative
Does the work performed require special skill and initiative?
– AI narrows this factor
– AI: Look to business skill as well as technical
– AI: Worker’s technical abilities not really part of “economic dependence” question
www.franczek.com
13
Factor 5: Permanency
Is the relationship between the worker and the employer permanent or indefinite?
– AI narrows this factor
– AI: “[T]he key is whether the lack of permanence . . . is due to the operational characteristics intrinsic to the industry.”
– AI: Structural lack of permanence not relevant Staffing agency workers example
Economic dependence > permanence
www.franczek.com
14
Factor 6: ControlWhat is the nature and degree of the employer’s control?– AI: deemphasizes this factor Lists it last; many courts consider it first Courts: who sets hours, ensures quality, sets pay rates;
are controls statutory/regulatory, industry standard, or employer-created
– AI: Control is control, even if required by regulators, dictated by customer satisfaction
– AI: Control of hours “largely insignificant” if typical in industry
– AI: Nature and degree of control just part of “economically dependent” question
www.franczek.com
15
What is “Work”?
The FLSA does not include a definition of “work”
www.franczek.com
16
FLSA Concepts of “Work”
Work is broadly interpreted as being to the employer’s benefit Employees must be paid from “whistle to
whistle,” with limited exceptions Work includes any time the employee is
required, requested, suffered or permitted to work It is the duty of management to see that
work not required or requested is not performed
www.franczek.com
17
Work “Suffered or Permitted”
FLSA: pay all work “suffered or permitted”– Includes anytime an employer requires OR
allows an employee to work
– No such thing as a volunteer
– Employer may not “sit back and enjoy the benefits” of an employee that works without entering time
www.franczek.com
18
The Core Concept: Compensability
Is the time compensable?
Core concept is whether an employee is engaged in work
– as part of the employer’s principal activity
– for the convenience of the employer.
If so, then that time is probably compensable in most cases, because it’s “work time.”
www.franczek.com
19
Questions to Ask Yourself
What time did the employee perform the first principal work activity?
Is the employee performing work remotely?– Is remote/smartphone work being captured in
timekeeping system?
– Is travel time being captured?
What time did the employee perform the last principal work activity?
Is the employee working from home at night?
www.franczek.com
20
Is the Activity Work Time?
Meal & Rest Breaks
Waiting/On-Call Time
Training/Meetings
Daily Travel
Overnight Travel
Sleep Time
Pre- and Post-Shift Activities
Off-the-Clock / After Hours
www.franczek.com
21
FLSA “Golden Rule” Still the Same
Employers must pay all non-exempt employees at least the minimum wage for all hours worked, and at least one and one-half their regular hourly rate of pay for all hours worked over 40 in a single workweek.
www.franczek.com
22
Three Tests for FLSA Exemptions
Salary Level
Salary Basis
Job Duties
www.franczek.com
23
Overview of Proposed Rule
Annual indexing of Salary Level
Increased, but uniform, Salary Level Test– More than doubles salary from $455 to ~$970
per week
– Increases Highly Compensated Employee salary level
Eliminates Fee Basis– Administrative
– Professional
Duties Tests essentially unchanged…for now
www.franczek.com
24
Annual Indexing of Salary Level
Annual indexing of Salary Level– Based on BLS “usual weekly earnings of
nonhourly full-time workers” Age 16+, working 35+ hours, not paid hourly Part of Current Population Survey New data set beginning January 2015
Salary Level = 40th Percentile– 2013: $921/week– 2014: $933– 2015 (est): $970
HCE Salary = 90th Percentile– 2013: $122,148/year
www.franczek.com
25
Salary Level Tests – BIG Changes
Minimum salary/fee level is ~$970 per week – Up from $455/week (or equivalent over longer period)
– Executive, Administrative, and Professional employees must be paid on a “salary basis” Fee basis removed
– Computer Employees may be paid:• on a salary/fee basis equal to ~$970
per week, or• an hourly rate of at least $27.63
• Outside Sales: no minimum compensation level or required method of payment
www.franczek.com
26
Salary Level Tests (continued)
Highly Compensated Employees– Added in 2004 revision
– Non-manual or office work
– Must receive total annual compensation of $122,148 at least ~$970/week on a salary or fee basis, and
– Must customarily and regularly perform any one or more (not necessarily all) of the exempt duties of an exempt executive, administrative or professional employee
www.franczek.com
27
Salary Level Tests – Changes Ahead
Definition of “salary” may change– Currently NOT includable in salary level Bonuses used for HCE test
– NOT included in salary
DOL considering whether to add:– Non-discretionary bonuses
– incentive payments
– commissions could count toward a portion of the standard salary
If (big if) DOL adopts this, likely to be capped
www.franczek.com
28
Fee Basis
Agreed amount for a single job– Similar to piece work
– Usually paid for unique job, not repeated, identical tasks
NOT based on hours worked
Fee must equal weekly salary level if employee worked 40 hours
Utility sharply curtailed in new regs– Administrative, Professional not
exempt when paid on a fee basis
www.franczek.com
29
Salary Basis Test - Unchanged Minimum weekly salary regardless of hours,
days, or shifts worked Permissible deductions:
– full day absences for personal reasons or for sickness or disability
– salary offset of jury duty fees, witness fees and temporary military pay
– certain unpaid disciplinary suspensions– partial-day deductions for unpaid FMLA leave – certain penalties for safety infractions
Additional compensation beyond salary permitted
www.franczek.com
30
The Duties Test
Unchanged…for now DOL asks 5 questions in NPRM1. What, if any, changes should be made to the duties tests?
2. Should duties test adopt “minimum time” performing primary, exempt duty? What one?
3. Should DOL adopt California;s rule (50% of time spent exclusively on primary, exempt duty)? Some other lower threshold?
4. Should the DOL go back to the old long/short duties tests?
5. Should exempt employees be allowed to perform nonexempt work, if so how much? Do exempt executives at lower levels perform non exempt work?
www.franczek.com
31
“White Collar” / EAP Exemptions, Generally
Salary Level
Salary Basis
Duties– Executive
– Administrative
– Professional
www.franczek.com
32
Executive Exemption
Primary duty of management
Must possess the authority to hire, fire, or otherwise affect the status of other employees or to recommend such action
Regularly directs two or more employees– e.g., President, Vice President of Operations,
Director of Sales, Director of Human Resources, etc.
www.franczek.com
33
Administrative Exemption
Primary duty of office work
Directly related to the management or general business operations of the employer or the employer’s customers
Regularly exercises discretion and independent judgment
www.franczek.com
34
Learned Professionals
Primary duty is performing work that requires advanced knowledge in a field of science or learning
Knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction
www.franczek.com
35
Professionals - Teachers
Primary duty of teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge
Must be employed as a teacher in an educational establishment
No salary basis requirement
36
What if the DOL adopts the California duties tests?
www.franczek.com
37
Primary Duty
FLSA
Employees who spend more than 50% of their time performing exempt work will generally satisfy the primary duty requirement
Regulations do not require that exempt employees spend more than 50% of time performing exempt work
California
Employees are required to spend more than half their time performing exempt work.
No more than 20% clerical work for outside sales
Little wiggle room in California!
www.franczek.com
38
Customarily and Regularly
FLSA
A frequency that must be greater than occasional but which, of course, may be less than constant
Includes work normally and recurrently performed every workweek
Does not include isolated or one-time tasks
California
More than 50% of the time.
39
More litigation!
www.franczek.com
40
Will Final Rule Survive Politics?
In 2004, Congress approved DOL funding bill that limited funds for enforcement of those rules
DOL took position that legislation only would affect it’s ability to implement and administer the rules, not to promulgate them
President Obama would likely veto any such legislation
www.franczek.com
41
Will Final Rule Survive Challenges?
Administrative Procedure Act– Agencies must provide “either the terms or
substance of the proposed rule or a description of the subjects and issues involved.”
On Salary Level, DOL has complied
On Duties Tests, DOL might have– No need to be specific, but…are questions
specific enough?
– Likely will be subject to litigation
– Not clear if DOL will change at all
42
What Should Employers Do?
43
Audit Policies and Practices
www.franczek.com
44
Audit Policies and Practices Identify all currently exempt employees who earn
less than $970 per week Consider your options:
– Reclassifiy as non-exempt– Change pay plan (shift fringe benefits to salary,
guarantee more comp)– Use other available exemptions (retail sales, others)– Increase pay– Restructure positions (e.g., part-time exempt
managers)
Make annual salary reviews a policy– Remember: salary level now indexed annually, may
require annual salary increases
www.franczek.com
45
Audit Policies and Practices
Identify all current HCEs who more less than $100,000 but less than $122,148 per year– Consider whether/how they qualify as HCEs
Prepare now for duties test changes– EAP/white collar jobs: more than 50% of time
spent on exempt duties?
– Sales: less than 20% clerical?
Check deduction practices, policies
www.franczek.com
46
Policies and Practices: DeductionsSeven exceptions from the “no pay-docking” rule:
1. Personal absence from work for one or more full days
2. Sickness or disability absence from work for one or more full days
3. Jury Fee, Witness Fee or Military pay offsets4. Penalties for violating safety rules of “major
significance”5. Unpaid disciplinary suspension for violations of
workplace conduct rules6. Proportionate part of full salary for time actually
worked in the first and last weeks of employment7. Unpaid leave under the Family and Medical Leave
Act
www.franczek.com
47
Policies and Practices: Deductions Improper salary deductions will result in the loss of
the exemption:– During the time period in which improper deductions
were made– For employees in the same job classifications– Working for the same managers responsible for the
actual improper deductions
Improper deductions do not result in loss IF– Employer has communicated policy– Employees have complaint mechanism in policy– Deductions are isolated or inadvertent– Employer reimburses the employee– Employer commits to comply in future
www.franczek.com
48
Effect of Improper Deductions
Enterprise
Manager A
Engineer A
Engineer B
Chemist
Manager B
Engineer C
Engineer D
If Manager A has docked the pay of Engineer A on each of 12 days when Engineer A arrived late for work during the last 3 months, then the exemption could be lost for both Engineer A and Engineer Bduring that 3 months!
• Not lost for the Chemist (different job) or Engineers C and D (different manager)
49
Train Administrators and Supervisors
www.franczek.com
50
Train Administrators and Supervisors
Write and publish policies!– Unwritten rules not easily enforced, not a defense for
deductions
Clearly communicate policies:– Prohibition on improper deductions from exempt, salaried
employees– Complaint mechanism for employees – Impact of disciplinary rules on exempt employees’ pay
Review existing pay policies and practices as they function in practice– Are deductions made?– How are FMLA absences treated?
Communicate pay practice/plan changes
51
Keep Good Records
www.franczek.com
52
Keep Good Records
Again: write and publish policies!
Reexamine job descriptions– Reflect exempt duties?
– Consider documenting time spent on each duty based on actual observations
New recordkeeping– Retail sales exemption?
– Workflow/time spent on tasks
– Should exempt employees track time?
53
Get Professional Help Early
54
Fix Your Mistakes
www.franczek.com
55
Limited Options
OptionIs it legal?
Immediate Cost?
Risk of future claims?
Ignore theproblem.
No. IntegrityHigher risk of wilful violations, penalties, if caught
Fix going forward only.
No. $$May trigger further claims, higher risk of wilful violations, penalties, but risk diminishes with time
Fix retroactively Yes $$$Reduced, but employees may still be able to claim extra pay
Fix retroactively and seek DOL-supervised or court- approved settlement
Yes $$$$
Claims will be resolved, but seeking DOL involvement or waiting for litigation will likely expand scope of claims, drive up costs
www.franczek.com
56
Retroactive Payments
Calculate amount owed and document calculation
If amount is uncertain (e.g., because hours were not tracked) seek employee’s agreement
Obtain signed acknowledgement from employee
Consider requesting a release in appropriate cases, but understand it may not be enforceable
57
Questions?
Copyright © 2014, Franczek Radelet P.C. All Rights Reserved. Disclaimer: Attorney Advertising. This presentation is a publication of Franczek Radelet P.C. This presentation is intended for general informational purposes only and should not be construed as legal advice.
New Overtime Rules Are Here: Your Comprehensive Action Plan for Reducing Wage and Hour ViolationsBLR Live Webinar
July 21, 2015
Doug [email protected]
www.wagehourinsights.comTwitter: @WageHourInsight
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.
Doug Hass represents a wide range of public and private sector employers in wage & hour issues, discrimination, harassment, retaliation, and labor relations. He also counsels employers on employment-related immigration, immigration law
compliance, and unauthorized employment issues, and defends employers against sanctions and worksite enforcement actions by the Department of Homeland Security (DHS) and Immigration & Customs Enforcement (ICE). Additionally, Doug counsels clients on technology-related policies, privacy, restrictive covenant/non-competition agreements and the protection of trade secrets and intellectual property. Hass helps clients stay on top of wage and hour law matters by serving as an author of Franczek Radelet’s Wage & Hour Insights blog, and on Twitter at @WageHourInsight.
Doug Hass