The document discusses proposed changes to the Fair Labor Standards Act regulations that would increase the minimum salary threshold for exempt employees. It is expected that the final regulations will be issued in 2016 and will likely increase the minimum guaranteed pay to $970 per week or $50,440 annually. For organizations, the key steps are to identify employees currently classified as exempt who make less than the new threshold, analyze options to raise salaries or reclassify as non-exempt, and develop a communication and implementation strategy. FAQs and consistent messaging will be important to address employee questions and concerns through the change process.

1. Implementing the new Fair Labor
Standards Act Regulations
ILLINOIS ESOP CONFERENCE – CHAMPAIGN -MARCH 10, 2016

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Today’s Panel
David S. Horvath
Crowe Horwath LLP
Tel 630.586.5117
David.Horvath@crowehorwath.com
.
Laura B. Friedel
Levenfeld Pearlstein. LLC
Tel 312.476.7510
lfriedel@lplegal.com

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Proposed FLSA Overtime Regulations
 Announced July 6, 2015
 1st update to regulations since August 2004
 Public comment period closed on September 4th
 Expect final regulations in 2016… likely
 Likely will take effect 30-60 days after published

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FLSA Overtime Regulations
Exempt status requirements reminder…..
Currently, to be exempt under the White Collar (Administrative, Executive,
Professional) Exemptions the employee MUST:
1. Be paid on a salary basis;
2. Receive guaranteed salary (or other guaranteed pay) of at least $455/week
($23,660/year); AND
3. Meet the job duties test.
The proposed regulations only change #2….

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What Tasks are “Exempt”?
 What tasks are recognized as exempt?
 Administrative
 Executive
 Professional
 What tasks are recognized as nonexempt?
KEY = PRIMARY DUTY
It appears that the Duties Tests will remain unchanged but the
regulations change the salary threshold requirement.

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Final FLSA Exemption Revisions To Be
Issued Soon
 June 29, 2015: The Wage and Hour Division of the Department of Labor issues the
Proposed Rule and Request for Comments:
 29 CFR Part 541 RIN 1235 – AA11: Defining and Delimiting the Exemptions for
Executive, Administrative, Professional, Outside Sales and Computer Employees
 Sixty day comment period
 Proposed drastic increase in minimum salary for White Collar exemptions.
 Did not include any changes to job duties tests, but left door open.

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What Do the Proposed Regulations
Change?
New proposed minimum guaranteed pay:
 NPRM suggests $970 per week ($50,440 per year)
 40th Percentile of full time salaried employees, nationwide
 Prediction for final is based on anticipated Q2 2015 – Q1 2016 data. With delay, it will
likely be higher.
 NPRM also increases threshold for Highly Compensated Employee exception –
but doesn’t apply in Illinois
 Annual increases
Two possible methods for annual increases:
 Fixed percentile of salaried employees
 40th percentile for given year (90th for Highly Compensated)
 CPI-U

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Response to Proposed Regulations
 September 4, 2015: Comment period officially ends. Published comments address
the following issues:
 High cost to non-metro areas of the country and the built-in inflation factor with 40th
percentile of weekly earnings factor; and
 It is projected that 122 million workers will be affected by the salary threshold increase
but less than 1% of them will receive salary raises to the new threshold
 This accentuates the concerns around reclassifying exempt to non-exempt and controlling
OT costs
 Since late October → mixed messages about timing of
final regulations

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Proposed FSLA Overtime Regulations
 Steps to take in anticipation of new regulations:
 Identify exempt employees making salary <$52k/year
 Identify commissioned exempt employees making guaranteed pay <$52k/year
 Weigh financial and cultural impact of pay increase vs transition to non-exempt
 Consider using change in regulations as opening to change status of questionably-
classified employees
 Consider how you will annually assess whether minimum salary is satisfied

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Specific Application to Your
Organization
Key Questions:
1. Which positions currently have incumbents who are considered exempt paid below the
expected new minimum salary threshold?
2. Which major option do you select?
 Automatically raise the exempt incumbents’ salaries to the new minimum (option 1)
 Reclassify employees to non-exempt (option 2)
3. What are the consequences for each option?
 Which option would cost more?
 Which option has greater risk?
 How best do we make and implement this decision?

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Communication is Vital
 Critical conversations addressing undesired change
 Consistent conversations to maintain accuracy and policy
compliance
 Prepared communications to ensure quality messaging
 FAQs and a single source as the point of contact for
questions.

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FAQs that may apply to your
organization
 Why is my position being reclassified?
 What do these changes mean to me?
 Is this a demotion?
 How do I record my time?
 How is overtime calculated?
 When will I begin receiving overtime pay?
 My job hasn’t changed, if I’m getting overtime now, shouldn’t I
always have gotten it?

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FAQs continued
 How does this reclassification impact my benefits?
 How does this impact my bonus or incentive compensation?
 Who can I talk to about my follow-up questions?
 Will I receive less pay?
 Can I work as much overtime as I want (or as I usually do)?
 What if I want comp time instead of overtime pay?

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Other Questions/Concerns That May
Arise?
 Will I receive back pay for the extra hours I’ve worked in the past (i.e.
week, month, year…)?
 How will this change be communicated to my peers, direct reports,
and/or the company in general?
 How will this affect my career aspirations at this organization?

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Considerations for Companies
 Identify those currently exempt employees below the salary threshold
 Analyze the cost of options including raising salary to new threshold or
paying overtime premiums
 Consider non-financial implications affecting employees
 Consider impact on retirement plans, incentive compensation and
bonuses
 Formulate a compliance, communications and implementation strategy