The document discusses the Department of Labor's proposed changes to regulations regarding overtime exemptions under the Fair Labor Standards Act. Key points include: - The DOL proposed increasing the minimum salary level for exempt "white collar" employees from $47,892 to $50,400 per year. - Employers objected to the proposed salary level and automatic annual increases. - The DOL may also tighten the duties tests, such as requiring employees spend 50% of their time on exempt duties. - Employers are advised to begin preparing for the changes, including identifying impacted employees, reviewing compensation plans and policies, and communicating changes.

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WORKING ON OVERTIME
Preparing for DOL’s Changes to
the FLSA Overtime Regulations

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FAIR LABOR STANDARDS ACT
Requires payment of the minimum wage for all hours
worked and overtime at 1 ½ times an employee’s
regular rate for hours worked over 40 in a week
Since it was passed in 1938, Section 13(a)(1) of the
FLSA has exempted certain “white collar” employees
The Secretary of Labor has broad authority to “define
and delimit” the exemptions

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29 C.F.R. PART 541
DOL has defined the “white collar” (or “EAP”)
exemptions in regulations at 29 C.F.R. Part 541
• Executive
• Administrative
• Learned Professional
• Creative Professional
• Computer
• Outside Sales

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FEATURED SPEAKER
Tammy McCutchen
• P r i n c i p a l , L i t t l e r M e n d e l s o n
• V P S t r a t e g y, C o m p l i a n c e H R
• F o r m e r A d m i n i s t r a t o r, U S - D O L ,
W a g e & H o u r D i v i s i o n
 A u t h o r, 2 0 0 4 R e v i s i o n s t o
W h i t e C o l l a r E x e m p t i o n s

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PROPOSED CHANGES
Working on Overtime:
Preparing for DOL's Changes to the FLSA Overtime Regulations

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THREE TESTS FOR EXEMPTION
Salary Level
Salary Basis
• Salary level and basis tests do
not apply to lawyers, doctors,
teachers or outside sales
• Computer employees can be
paid by the hour ($27.63)
Duties

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MINIMUM SALARY LEVEL
Set the minimum salary at the
40th percentile of weekly
earnings for full-time “non-hourly
paid” employees
• Currently, $921/week or
$47,892/year
• Expected to increase to $970/week
or $50,400/year by the time a Final
Rule is issued in 2016

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AUTOMATIC, ANNUAL INCREASES
DOL proposed to establish a
mechanism for automatically
increasing the salary levels
annually based either on the
percentile (40%) or inflation
(CPI-U)

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INCLUDING BONUSES
DOL sought comments on
allowing nondiscretionary
bonuses paid monthly or more
frequently to satisfy up to 10%
of the minimum salary level

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CHANGES TO THE DUTIES TESTS?

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REDEFINING “PRIMARY DUTY”
Current definition:
• The “principal, main, major or
most important duty that the
employee performs”
Possible changes:
• Requiring employees to
spend a certain amount of
time perform work that is
their exempt primary duty
• Adopting the “California rule”
requiring that 50% of an
employee’s time be spent
exclusively on work that is
the employee’s primary duty

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ELIMINATION OF “CONCURRENT
DUTIES”
Current definition:
• Nonexempt work “does not
disqualify” an employee from
the executive exemption when
the employee decides when to
perform such non-exempt
work and remains responsible
for success/failure of the
business.
Possible changes:
• Eliminated entirely
• Modifying the rule “to avoid
sweeping nonexempt
employees into the
exemption”
• Limitation on the amount of
nonexempt work that an
exempt employee can
perform

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RETURNING TO THE “LONG” AND
“SHORT” TESTS
Current:
• In 2004, DOL eliminated the
“long” and “short” duties test
structure and adopted a single
standard duties test for each
exemption.
Possible changes:
• Return to a two-tier structure
with additional duties
requirements for employees
at a lower salary level;
• Pre-2004 “long” tests
included a 20% restriction on
non-exempt work (40% in
retail).

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EMPLOYER COMMENTS
Working on Overtime:
Preparing for DOL's Changes to the FLSA Overtime Regulations

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PUBLIC COMMENTS

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PUBLIC COMMENTS
Employers said $50,000 is to high
• Some employers suggested a 3 to 5 year phase-in period
Employers objected to annual increases in salary level
Employers supported counting bonuses towards salary level, but also
stated:
• Commissions should also count
• Bonuses paid quarterly or annually should also count
• Should not be limited to just 10%
Employers objected to any changes in the duties tests because of
DOL’s failure to provide sufficient notice

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PREPARING FOR CHANGE
Working on Overtime:
Preparing for DOL's Changes to the FLSA Overtime Regulations

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THE RULEMAKING PROCESS THUS FAR
January 2014, State of the Union Address: President Obama indicates
dealing with “stagnant wages” is a top priority
March 2014, Memorandum: President Obama directs Secretary of Labor
Perez to revise the overtime regulations
Summer 2014, Listening Sessions: Secretary Perez meets with
stakeholders including (business associations, non-profit organizations,
employee advocates, unions, state/local governments)
July 2015, NPRM: Wage & Hour Administrator Weil issues proposed
changes to the Part 541 regulations. The comment period closed
September 4, 2015

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WHEN WILL DOL PUBLISH THE FINAL RULE?
On November 11, the Wall Street Journal quoting Solicitor
of Labor Patricia Smith as stating that the Final Rule would
not be published until “late 2016”
On November 20, Administrator Weil’s Fall 2015
Regulatory Agenda for the Wage & Hour Division set
publication of the Final Rule for July 2016
On December 12, in an interview with BloombergBNA,
Secretary Perez stated that the Final Rule “will be issued
by Spring 2016”

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WHAT IS LIKELY TO CHANGE?
Salary Level
• Although DOL may moderate down a bit, also unlikely to
increase salary level above $50,440
• Likely to implement automatic annual increases
• Unlikely to allow bonuses to count towards the minimum salary
level
Duties Tests
• Likely to move towards the California 50% primary duty rule,
but not likely to bring back 80-20 rule under a long test
• Likely to eliminate concurrent duties

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PREPARING FOR CHANGE
Do not wait until DOL publishes its final rule
to begin preparing for change
DOL likely will provide employers only two
months to comply with the Final Rule
Determining who to reclassify and
implementing reclassification can take up to
six months
Business partners need to understand the
possible budgetary impact of the salary-level
increase

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COMPLIANCE, STEP-BY-STEP
1. Identify employees who need to be
reclassified
2. Develop new compensation plan for
the reclassified employees
3. Review wage-hour policies and
processes
4. Communicate the changes
5. Train the reclassified employees
and their managers

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IDENTIFY JOBS FOR REVIEW
Jobs paid below $60,000 annual salary
Jobs in the lowest two or three pay grades
Jobs with large numbers of incumbent employees
Class action favorites
• Accounting
• Assistant managers
• Sales and sales support
• Help desk functions and other computer employees without programming duties
• Customer service
• Technicians

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SALARY INCREASE OR OVERTIME?
Pull salary and incentive pay data
Calculate the cost of increasing salary to $50,440
• Consider lowering incentive pay to offset
salary increase
Calculate the cost of overtime
• How many hours are exempt employees
working?
• (Weekly salary / 40) * 1.5 * expected
overtime hours

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COST-NEUTRAL SOLUTION
Weekly Salary / (40 + (OT Hours x 1.5))
With a good estimate of expected weekly work
hours, applying this formula will provide an hourly
rate which will result in the same weekly and
annual compensation
Yes, its legal – DOL gave us this formula in the
preamble to the 2003 Notice of Proposed
Rulemaking (68 F.R. 15576)

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JOB DUTY REVIEW
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AFTER THE RECLASSIFICATION DECISION

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COMPENSATION PLAN REDESIGN
Should we continue to pay reclassified employees on a salary or
convert them to a hourly rate?
Should we adjust the salary level downward or adopt an hourly rate
that will minimize additional costs?
How will we calculate overtime for salaried non-exempt employees?
• Divide salary by 40
• Divide salary by actual hours worked
• Fluctuating workweek
Will we continue to provide incentive compensation?
Do we need to make changes to any benefits?

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REVIEW POLICIES AND PROCESSES
Processes
• Timekeeping
• Payroll changes
• Controlling overtime hours
Policies
• Off-the-clock work
• Meal and rest break
• Travel time
• Mobile device

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Need to communicate with senior management, managers of
reclassified employees and the employees themselves
Key decisions
• Who will communicate the changes?
• What will be communicated?
• How will changes be communicated?
• When will the changes be communicated
Prepare talking points and FAQs
COMMUNICATE THE CHANGES

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TRAINING
Train the reclassified employees and
their managers
• Wage & hour policies
• Timekeeping procedures
• Activities that are compensable
work

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45. Executive Exemption
Administrative Exemption
Outside Sales Exemption

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COST OF NON-COMPLIANCE
Since 2007, employers
have spent $4 billion to
settle wage-hour lawsuits
• The average settlement in
2014 was $5.3 million
In that same time period,
DOL has collected another
$1.9 billion
• 79% of investigations
resulted in payment of
back wages
4,055
3,4263,464
4,398
6,786
5,302
5,644
6,081
7,0087,064
7,764
8,126
8,781
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FLSA Lawsuits on the Rise

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Q U E S T I O N S ?

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Lori B row n
brown@compliancehr.com
305.213.5419
Tammy McCutchen
mccutchen@compliancehr.com
202.414.6857