The document discusses new Fair Labor Standards Act (FLSA) overtime regulations effective December 1, 2016, which mandate that employees earning less than $47,476 annually must receive overtime pay, affecting approximately 4.2 million workers. It outlines compliance options for employers, including reviewing pay structures and tracking hours, while clarifying the exemption criteria for certain employee classifications, particularly in non-profits and educational institutions. The final rule also highlights the use of non-discretionary bonuses in meeting the salary threshold and emphasizes the importance of transparent communication with affected employees regarding these changes.

2. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management
www.macpas.com/collaborate2016

3. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

4. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

5. FLSA Overtime Rule
Effective December 1, 2016

6. Introduction
Suzanne Sentman
• McKonly & Asbury
• Human Resource Director
• SSentman@macpas.com
John Martin
• Rhoads & Sinon
• Partner
• JMartin@rhoads-sinon.com

7. March 2014 Presidential
Memorandum
• Directed the DOL to update the overtime regulations:
• To reflect the intent of the Fair Labor Standards Act.
• To simplify and modernize the rules so they’re easier for workers and
businesses to understand and apply.

8. Background
• Fair Labor Standards Act (1938)
• Guarantees a minimum wage for all hours worked.
• Limits the number of hours an employee can work without additional
compensation to 40 hours per week.
• Some employees are “exempt” from minimum wage and overtime pay
protections. Section 13 (a)(1): “Any employee employed in a bona fide
executive, administrative, or professional capacity.”
• Exemption based on the belief that EAP workers “typically earn salaries
well above minimum wage and enjoy other privileges, including above-
average fringe benefits, greater job security and better opportunities for
advancement, setting them apart from workers entitled to overtime pay.”

9. White-Collar Exemption: Three Part
Test
1. Salary Basis Test: Employee must be paid a predetermined and fixed salary that is not subject
to reduction because of variations in the quality or quantity of work performed.
2. Salary Level Test: The amount must meet a specified amount.
3. Duties Test: The job duties must primarily involve executive, administrative, or professional
work (EAP).
• The DOL has long recognized that the salary level test is the best single test of exempt status for
white collar employees.
• If left at the same amount over time, the effectiveness diminishes as the wages of employees
increase and the real value of the salary threshold falls.
• DOL has raised threshold over the years, most recently in 2004: $23,660 annually ($455 per week). This
current threshold is below poverty level for family of four; only 8% of full-time workers fall below it.
• The final rule ensures that “white collar employees who should receive extra pay for overtime
hours will do so and that the test for exemption remains up-to-date so future workers will not be
denied the protections that Congress intended to afford them.”

10. What is the New FLSA Overtime Rule?
• Effective December 1, 2016 overtime protections will be extended
to those not currently eligible under federal law (as many as 4.2
million).
• Workers earning less than $47,476 annually ($913 weekly) will have
to be paid overtime even if they are classified as manager or
professional.
• The DOL will increase the salary threshold every three years. The
first update, January 1, 2020 will most likely increase the threshold
to more than $51,000.
• Employers must comply with new regulations by December 1.

12. Other Changes in the Rule
• Duties test untouched!
• Sets the total annual compensation requirement for highly
compensated employees (HCE) subject to a minimal duties test to the
annual equivalent of $134,004 (90th percentile).
• HCE exemption is not recognized in PA
• Allows non-discretionary bonuses, incentives and commissions to
count toward up to 10% of the required salary threshold to meet the
exemption, provided employers pay those amounts on a quarterly or
more frequent basis. Examples: production goal bonuses, retention
bonuses and commissions based on a fixed formula.

13. Non-Discretionary Bonuses,
Incentives, and COmmissions
Example:
Quarter 1 (Jan, Feb, Mar) employee must receive $821.70 per week in salary
(90% of $913). The remaining $91.30 per week would be paid as non-
discretionary bonuses, incentives or commissions.
• “Catch-up” payment: If at the end of the quarter the employee has not
received $91.30 per week the employer has one additional pay period to
pay the employee a lump sum (no greater than 10% of the salary level) to
meet the minimum salary test.
• If employer chooses not to make catch-up payment, employee would be
entitled to OT for any hours worked in Quarter 1.
Non-discretionary bonuses must be included in OT calculations!

14. What Can’t Be Counted
• Discretionary bonuses
• Payments for medical, disability or life insurance
• Contributions to retirement plans
• Other fringe benefits, such as payments to a bona fide profit sharing
plan or trust

15. Salary Plus Overtime for Those Below
$47,476
An employer might pay employees a salary for the first 40 hours of
work per week, and then pay overtime for any hours over 40
Example…
• Amy, a budget director at a college, earns a fixed salary of $41,600
per year ($800 per week) for a 40 hour work week. Amy’s regular rate
is $20 per hour. If Amy works 45 hours one week, the employer would
pay time and one-half for five hours at a rate of $30/hour.
• Amy should be paid $950, consisting of her $800 per week salary and
$150 overtime compensation.

16. Other Businesses / Industries
Affected?
• Non-Profits are affected two ways:
• Enterprise Coverage: Not covered by FLSA unless they engage in ordinary
commercial activities that result in sales or business of $500K or more per
year.
• Individual Coverage: Employees who are engaged in interstate commerce
are covered by the FLSA!
• Interstate commerce: making telephone calls, sending emails or writing letters to
someone in another state, credit card transactions, or ordering or receiving goods
from an out-of-state vendor.
• It is possible for an organization to be exempt from the FLSA under the
enterprise coverage definition but its employees covered under the FLSA
individually!

17. Other Businesses / Industries
Affected?
• Educational Institutions
• No changes that provide special relief for institutions of higher education.
• Bona fide teachers still exempt from minimum salary requirements.
• Employees who are in administrative capacity at both non-profits and
educational institutions are covered under new guidelines.

18. Other Businesses / Industries
Affected?
• Given First Amendment rights, what about churches and other
religious entities?
• Is there a “ministerial exception” to the FLSA? Sort of…

19. Churches and Religious
Organizations
• No ministerial exception to statute; however, court judges have
created it through judge-made law under our common law system.
• Some positions, such as a Catholic priest or ordained minister, likely
fall within scope of “ministerial exception.”
• Others are a closer call…lay administrators, office staff, maintenance
workers, secular instructors.
• Caution when using ministerial exception!

20. Churches and Religious
Organizations
• Range of positions considered “ministerial” and exempt from coverage
under FLSA and/or state wage and hour laws:
• Church music / choir directors
• A seminarian who assists with Catholic Mass
• Ordained and non-ordained Baptist seminary faculty
• A Catholic diocese’s Director of Religious Formation
• A Mashgiach, who supervises the kashrut status of a facility, at a Jewish nursing
home
• A religious hospital’s chaplain
• Salvation Army administrators who led worship and had separate duties at Salvation
Army thrift shops
• A Catholic nun denied tenure for a canon law professorship at Catholic University

21. Compliance Options…
The Final Rule would have no impact on pay for those not working more than 40
hours in a workweek. For those that do…
• More pay?
• Raise salaries to keep exempt status
• Beware of salary compression!
• When gap closes between less experienced employees vs. experienced and supervisors/managers
• Less impact to budget to pay overtime at a lower rate for select group vs. increase salary scales across
board
• Reclassify as non-exempt and track hours?
• Employees report hours and are eligible for overtime for hours > 40 in workweek
• Fewer hours?
• Monitor schedules to avoid OT
• Adjust workload / hire employees?
• Reduce schedules and spread work to others to avoid OT

22. Compliance Options…
• Comp time as an option?
• State or Local Governments
• Public Agencies
• NOT Private Sector Employers
• Comp Time must be credited at the same rate as overtime!
• No less than 1.5 hours of comp time for each hour of overtime worked

23. Compliance Pointers for Non-Profits
and Religious Organizations
• Consider employees duties. Enterprise and “ministerial” exemptions may
not apply.
• Preschool or daycare teachers whose primary duties are teaching are
exempt.
• The new minimum salary level is the only provision that is new.
• Employees cannot “volunteer” time for same duties for which they are
paid.
• Comp time is not legal.
• Averaging hours over a period of time is not legal. Calculations are based
on a fixed work week, seven consecutive days.

24. Employee Relations Issues
• Change! (Those never having had to track hours or report time now
will need to...)
• Employees may view non-exemption status as a demotion.
• Less flexibility (i.e. longer lunches, leaving to attend a school event,
leaving early on a Friday, etc.).
• OT for some; not for others in same job?? Two employees
performing the same job, but due to experience or tenure one is
above the salary level of $47,476 / year and one is below. The
employee making less than $47,476 is eligible for OT.

25. Steps for Employers to Prepare for
Implementation
• Review Job Descriptions and exempt vs. non-exempt duties.
• Determine which employees are affected.
• Analyze impact of bumping pay levels, hiring more employees to
spread out hours, downgrading some jobs to funnel exempt tasks up
the ranks.
• Upgrade time keeping systems to track hours.
• Communicate any status changes /job duties to affected employees.
• Have exempt employees who fall below $48,000/year keep a record
of their hours worked including off-hours time on electronic devices.

26. Employer Communication Strategies
Prior to 12/1
1. Communication with all employees to minimize confusion
2. Communication with only affected employees…
• Status changes
• Exempt to non-exempt
• Job duties changes
• Benefit changes
• Working from home/taking work home
• Responding to job-related phone calls after hours
• Working through lunch
• Emails—limiting outside of regular work hours or establishing a curfew
• Memorializing telecommuting agreements
• Addressing travel time arrangements

27. Resources from the DOL
• Questions about travel time, on-call time, sleeping time, etc? See Fact Sheet #22:
Hours Worked
• Employees at Daycare Centers and Preschools: See Fact Sheet #46
• Payroll recordkeeping requirements: See Fact Sheet #21: Recordkeeping Requirements
• Can you adjust the workweek? No, once established it remains fixed
• 778.105 Determining the workweek: An employee's workweek is a fixed and regularly recurring
period of 168 hours - seven consecutive 24-hour periods. It need not coincide with the calendar
week but may begin on any day and at any hour of the day. For purposes of computing pay due
under the Fair Labor Standards Act, a single workweek may be established for a plant or other
establishment as a whole or different workweeks may be established for different employees or
groups of employees. Once the beginning time of an employee's workweek is established, it
remains fixed regardless of the schedule of hours worked by him. The beginning of the workweek
may be changed if the change is intended to be permanent and is not designed to evade the
overtime requirements of the Act. The proper method of computing overtime pay in a period in
which a change in the time of commencement of the workweek is made, is discussed in §§
778.301 and 778.302.

28. Questions?
Suzanne Sentman
• McKonly & Asbury
• Human Resource Director
• SSentman@macpas.com
John Martin
• Rhoads & Sinon
• Partner
• JMartin@rhoads-sinon.com

29. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

30. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

31. Questions?
Suzanne Sentman
• McKonly & Asbury
• Human Resource Director
• SSentman@macpas.com
John Martin
• Rhoads & Sinon
• Partner
• JMartin@rhoads-sinon.com

32. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management
www.macpas.com/collaborate2016