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Presented by WebsterRogers and Thomas & Brittain, P.A.

June 16, 2016

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The rule substantially increases the salary thresholdsfor the executive, administrative, and professionalexemptions, as well as for highly-compensatedemployee exemptions.◦ Salary threshold will automatically increase every three (3)

years.

The rule did not change the duties test.

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The Fair Labor Standards Act requires covered employers to pay employees the minimum wage ($7.25/hour) and overtime (1 & ½ times regular rate of pay) for hours worked over 40 hours per week.

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Two ways employees are covered:1. Enterprise Coverage

o Employees who work for a certain business with at least two employees that:

1. Have an annual dollar volume of sales or business done of at least $500,000. or

2. Hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies.

2. Individual coverage◦ SC Test: “For an employee to be engaged in interstate commerce

under the FLSA, he must be directly participating in the actualmovement of persons or things in interstate commerce” by: Working for an instrumentality of commerce, or Regularly using the instrumentalities of interstate commerce for work

(e.g. regular and recurrent use of interstate telephone, telegraphs,mail, or travel).

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A cashier or waitress who uses an electronic device which authorizes a credit card purchase.

An employee who unloads goods from an out of state supplier.

An employee who travels to another state while performing his or her job duties.

A security worker at an airport. Employees who produce goods that will be sent out of

state. An employee who regularly uses a telephone, facsimile

machine, the U.S. mail, or a computer email system to communicate with persons in another state.

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1. Quantitative: The employee must regularly and recurrently use the

instrumentalities of interstate commerce in his work.Greer v. McGregor, 2013 WL 808838 (D.S.C. Mar. 5,2013).

Courts generally require that the activity involvinginterstate commerce be an essential function of the job.◦ For example, courts have denied coverage where “the main

purpose of [the employment] involves an essentially local activityor production [and any] subsequent involvement in interstatecommerce is fortuitous, and unsubstantial in the light of thepurposes of the act.” Hodgson v. Hyatt Realty & Inv. Co., Inc. 353F.Supp. 1363, 1375 (M.D.N.C. Jan. 30, 1973).

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2. Qualitative: The activity “must constitute interstate commerce,

not merely affect interstate commerce.” Dean v.Pacific Bellwether, LLC, 996 F.Supp.2d 1044, 1049(D.N. Mar. Is. 2014).

Must involve the actual movement of persons orthings in interstate commerce.

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◦ The applicable regulations were drafted in an era before theInternet.

◦ Examples of Internet Use that could result in interstatecommerce: Selling goods to customers out-of-state through online store. Buying goods online from an out-of-state merchant. Email to customers/vendors out-of-state (quality/quantity of

communications). Marketing to out-of-state clients (Social Media Marketing).

◦ Public Policy Argument: Some courts have held that if occasionalinternet use were to satisfy the requirement, then “the applicationof the FLSA would be nearly limitless in the modern era.” Bien-Aime v. Nanak’s Landscaping, Inc., 572 F.Supp.2d 1312, 1317(S.D. Fla. 2008).

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◦ “White Collar” Exemptions: Professional Exemption Administrative Exemption Executive Exemption

◦ Highly Compensated Employees Employees performing office or non-manual work, regularly

perform at least one of the duties of an exempt, executive,administrative, or professional employee, and paid total annualcompensation of $100,000 or more*

*Rate will increase after December 1, 2016

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Job duties test◦ Executive Employee compensated on a salary basis at rate not less than $455 per week; Employee’s primary duty must be managing the enterprise, department or

subdivision; Employee regularly directs the work of at least 2 or more full-time employees; Employee must have authority to hire and fire other employees, or have particular

weight with recommendations to hiring, firing, advancement or promotion.

◦ Administrative Employee compensated on a salary basis at rate not less than $455 per week; Employee’s primary duty must office or non-manual work directly related to

management or general business of employer or customers; Employee’s primary duty includes discretion and independent judgement with

respect to matters of significance.

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Professional Learned Creative (invention, imagination, originality or talent in recognized

field) Other (Teachers, Practice of Law or Medicine)

Employee compensated on a salary basis or fee basis at rate not less than $455 per week;

Employee’s primary duty requires advanced knowledge, intellectual in character and includes work requiring exercise of discretion and judgment;

Employee’s advanced knowledge must be in a field of science or learning;

Employee’s advanced knowledge must be acquired by prolonged course of specialized intellectual instruction.

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◦ Computer Employee Exemption Employee must be compensated either on a salary or fee basis at a rate not less

than $455/week* OR, if compensated on an hourly basis, at a rate not less than$27.63/hour.

*Rate subject to new increase

Employee must be employed as a computer systems analyst, computerprogrammer, software engineer, or other similarly skilled worker in the computerfield.

Employee’s primary duty must consist of:1. The application of systems analysis techniques and procedures, including

consulting with users, to determine hardware, software, or system functionalspecifications;

2. The design, development, documentation, analysis, creation, testing, ormodification of computer systems or programs, including prototypes, basedon and related to user or system design specifications;

3. The design, documentation, testing, creation, or modification of computerprograms related to machine operating systems; or

4. A combination of the aforementioned duties, the performance of whichrequires the same level of skills.

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◦ Outside Sales Exemption: The employee’s primary duty must be making sales, or

obtaining orders or contracts for services, or for the use offacilities for which a consideration will be paid by the client orcustomer; and

The employee must be customarily and regularly engaged awayfrom the employer’s place or places of business.

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Job Duties ◦ Highly Compensated Employees Perform office or non-manual work Paid total annual compensation of $100,000 or more Customarily and regularly perform at least one of the exempt

executive, administrative, or professional employee’s duties

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To qualify for the so-called “White Collar” (Executive, Administrative, Professional)

overtime exemption:1. The employee must be paid a predetermined and fixed

salary that is not subject to reduction because ofvariation in the quality or quantity of the workperformed;

2. The salary must meet a minimum specified amount(salary threshold); and◦ Currently $455/week or $23,600/year

3. The job duties must primarily involve executive,administrative, or professional duties.

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Increases salary threshold from $455/week or $23,600/year to $913/week or $47,476/year.

Minimum compensation for highly compensated employees increases from $100,000/year to $134, 004/year.

The salary threshold will automatically increaseevery three (3) years.

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Based on 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region (the South)

Based on 2015 Census data

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Fi

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ANNUAL SALARY THRESHOLD

-FOR_FOR$23,660previous

level

4.2 M additional eligible for overtime benefits

$47,476final level

ANNUAL SALARY THRESHOLD

-FOR_$100,000previous

level

36,000 not eligible

for this exemption

$134,004 final level

- FOR -standard executive, administrative and

professional exemptions

- FOR -highly compensated employee exemptions

The Final Rule:

• Salary threshold raised from $23,660 to $47,476

• Non-discretionary bonuses can be used up to 10% of total amount for standard exception

• Highly compensated threshold raised from$100,000 to $134,004

• Annual automatic adjustments

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Next increase January 1, 2020 DOL estimates:◦ Minimum salary threshold : $984 per week or $51,168 per

year◦ HCE threshold: $147,524 per year

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FLSA overtime exemption has “not kept up with ourmodern economy.”

The regulations have not been updated in the last 10years.

Too many employees exempted from overtime arespending too much time carrying out non-exempttasks.

Current salary requirement is below the povertythreshold for a family of four.

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March 13, 2014: President Obama Signs Presidential Memorandum.

March 19, 2014: DOL says the proposed rulemaking will “take a few months.”

July 19, 2014: DOL promises proposed rule by the end of 2014.

Dec. 5, 2014: DOL says proposed rule to be released in February of 2015.

June 30, 2015: Proposed rule released on DOL website as a 295-page PDF.

July 6, 2015: Proposed Rule published in Federal Register.

Sept. 4, 2015: Comment Period Closed.

March 14, 2016: Final rule sent to White House Office of Management & Budget

May 18, 2016: Final Rule Released

Dec. 1, 2016: Implementation Deadline

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Nearly 300,000 comments. Salary increase too drastic and out of line with

historical levels. “Too much, too fast.” One-size fits all approach is flawed since it doesn’t

take into consideration the regional variations in standard of living.

Employee flexibility may be compromised.

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5 million (or more) employees nation-wide will bereclassified as non-exempt.

Over the next decade, the annual increases willresult in an additional 500,000 to one millioncurrently exempt employees losing their exemptstatus.

The increase will effect approximately 70,000workers in South Carolina.

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The food service and retail industries are expected tobe the most negatively impacted.

The effects will fall most heavily in the South,Midwest, and rural areas where the salary levelstend to be lower.

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Employers may cap or eliminate access to overtimework or adjust salaries to ensure that an employee’stotal wages remain the same.

DOL maintains that out of the employees directlyaffected, only approximately 1/5th work more than40 hours a week. Employers’ advocates believe thisfigure is unrealistic.

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Under the new rule, the DOL will allow non-discretionary bonuses and incentive payment (including commissions) to count toward 10% of the new salary threshold so long as they are paid quarterly or more frequently.

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Non-discretionary bonuses can be used up to 10% of total amount for standard exception Non-discretionary bonus encourage employee job performance. These are

employee controlled bonuses. Examples: commissions, performance-based bonuses, etc.

10% of $47,476 = $4,747.60

This 10% bonus can be used to meet the threshold no less frequently than quarterly.

$47,476/4 = $11,869 per quarter$4,747.60/4 = $1,186.90 per quarter$11,869 - $1,186.90 = $10,682.10

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If work is performed over 40 hours, non-exemptemployees must be paid time and a half per hourworked.

Employers are not required to guarantee that anemployee will receive overtime work.◦ If employee works overtime, must pay.

To mitigate increased labor costs, employers mayconsider implementing changes to bonus structures,benefits, work schedules, etc.

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Employee morale: formerly exempt employees may view reclassification as a “demotion.” ◦ Provide some other incentive compensation or

“sweeteners” to encourage performance?

Limited employee flexibility.

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Identify Exempt/Non-Exempt Status of All Current Employees. Identify current employees classified as exempt

under the white collar exemption who earn less than the new salary thresholds and therefore will no longer qualify for exempt status starting on 12/1/16

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Determine what actions to take with regard to each exempt employee who will no longer qualify for exempt status on 12/1/16, such as:Determine how many hours these employees currently work

and calculate cost of overtime vs. raising salary to new threshold level.Reclassify the employee as nonexemptRaise the employee’s salary to threshold level Consider whether the employee qualifies for another FLSA

exemptionRestructure or reassign work to avoid overtime if employee

will not qualify for exempt status.

Consider flexible or remote work schedules for hiring part-time employees as a method of reducing the need for overtime work.

Consider the cost of adjusting fringe benefits in order to take into account the increase in payroll costs that will result from implementation in the new Rule.

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Other Considerations: Consider conducting a comprehensive wage and hour

audit to identify and correct any existing misclassification issues under the FLSA if there is uncertainty as to current and future classifications.

Keep in mind all applicable laws prohibiting discrimination when adjusting salaries and/or benefits or taking other actions such as conducting layoffs. Review impact of adjustment of salaries and benefits, and whether a protected group is disproportionately impacted or whether an individual employee who is impacted may have grounds to challenge the decision as discriminatory.

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If major layoffs/terminations are involved, consider WARN Act implications

Implement, if needed, policies and procedures for maintaining accurate attendance and timekeeping records.

Train Supervisory personnel as to FLSA timekeeping procedures, requirements and the importance of accurate time records

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Create a communication plan with a tailored message toeffected employees.

Review wage & hour policies and processes and reviseas appropriate.

Draft new policies as appropriate, such as OvertimePolicy, Mobile Device Policy, Policy regarding Meal andRest Breaks, and Telecommunication Policy, ifapplicable.

Train managers and supervisors regarding theconsequences of non-compliance.

Train reclassified employees on any overtime policiesand/or timekeeping procedures.

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Protecting Workplace Advancement and Opportunity Act◦ Introduced in March by Senate and House Republicans.◦ Would (1) nullify proposed/final rule; (2) prohibit automatic

salary increase; and (3) prohibit changes to the duties testwithout providing a notice and comment period.

Congressional Review Act◦ Requires joint resolution of Congress within 60 legislative

days of publication of the Final Rule

President Obama is likely to veto both if they pass.

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New Administration?◦ Could restart regulatory process, but would likely be limited

to stopping the automatic salary increases and any changesto the duties test.

Litigation Challenges?

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Change will create a hidden opportunity to correctcurrent classification issues.◦ Ex: positions that may have been changed over the years and no

longer qualify for exemption. Without the “umbrella” of the proposed change, a

change of classification under normal conditions maycause an employee to think “Maybe I should have beenqualifying for overtime all along.” This could lead to wageand hour lawsuits.

Employers should take this time to audit employee’s jobduties and classifications to make sure employees areproperly classified.

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Wage and Hour cases are the most active types oflitigation in the employment law sphere. Filings upmore than 450 percent from 2000.

Insiders expect record-breaking FLSA trends in FLSAdue to the focus on the new rule.

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Wage & hour claims expose employers to the possibilityof liquidated damages.

FLSA:◦ Liquidated damages = 2 x back wages Presumption in favor of doubling, overcome only if employer can show

(1) their actions were taken in good faith and (2) they had reasonablegrounds for their belief that they were complying with the FLSA.

◦ Attorney’s fees◦ DOL may impose civil penalties up to $1,100 for each willful

violation. S.C. Payment of Wages Act:◦ Liquidated damages = 3 x back wages◦ Attorney’s fees

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Tipped Employees◦ Retention of tips (property of the employee)◦ Tip credit issues (cannot exceed $5.12)◦ Overtime◦ Tip pooling arrangements among employees who customarily and

regularly receive tips◦ Dual jobs

Health Care Industry◦ On call time◦ 8 and 80 overtime Allows employers to pay time and one-half the regular rate for all hours

worked over eight in any workday and eighty hours in the fourteen-dayperiod.

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“Independent Contractors” ◦ in 2013, DOL investigations led to more than $83 million in back

wages for 108,050 classified workers in low-wage industries,such as janitorial, food, construction, day care, and hospitality.

◦ Liquidated damages.◦ Factors:

1. The extent to which work performed is an integral part of theemployer’s business;

2. Whether the worker’s managerial skills affect his or heropportunity for profit and loss

3. Relative investment in equipment by the worker and the employer4. Worker’s skill and initiative (independent business judgment)5. Permanency of the worker’s relationship with the employer6. The nature and degree of control by the employer,

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Retaliation Claims◦ Section 15(a)(3) of the FLSA states that it is a violation for any

person to “discharge or in any other manner discriminate againstany employee because such employee has filed any complaint orinstituted or caused to be instituted any proceeding under orrelated to this Act, or has testified or is about to testify in any suchproceeding, or has served or is about to serve on an industrycommittee.”

Improper Recordkeeping◦ Posters Employers must display an official Department of Labor poster

outlining the provisions of the FLSA (available on the DOL’s website).◦ Record retention

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The following records must be kept for each non-exempt worker:

1. Employee’s full name and social security number;2. Address;3. Birth date (if younger than 19);4. Sex and occupation;5. Time and day of week when employee’s workweek begins;6. Hours worked each day;7. Total hours worked each workweek;8. Basis on which employee’s wages are paid;9. Regularly hourly pay rate;10. Total daily or weekly straight-time earnings;11. Total overtime earnings for the workweek;12. All additions to or deductions from the employee’s wages;13. Total wages paid each pay period; and14. Date of payment and the pay period covered by the payment.

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How long should records be retained?◦ 3 years: Payroll records Collective bargaining agreements Sales and purchase records

◦ 2 years:• Time cards• Wage rate tables• Work and time schedules• Records of additions to or deductions from wages

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FLSA Status Comparison Chart 

Nonexempt  Exempt Pay Type 

• Subject to the minimum wage ($7.25/hour) and overtime provisions established by the Fair Labor Standards Act (FLSA) 

• Employee must document hours worked per week on a time sheet 

• Employee must account for any time taken for benefit or holiday pay in hourly increments (as they are accrued in hourly increments) 

• Paid hourly on the Bi‐weekly (B2) payroll for work performed 

• Must be paid at least $455/week 

• Not subject to the minimum wage and overtime provisions established by the Fair Labor Standards Act (FLSA) 

• Paid on a salary basis on the Semi‐monthly (SM) payroll 

Overtime Payment Requirement • 1 ½ times the regular hourly rate paid for any 

hour(s) worked over 40 in one Rice work week (Sunday‐Saturday) 

• Overtime is paid when work is performed on a University recognized Holiday 

• Benefit, bereavement, personal , and recess time do not count towards calculating overtime for the week 

• Holidays do count towards calculating overtime for the week 

• Not eligible for any hour(s) worked over 40 in one work week 

Job Duties • Non managerial duties 

• Support Staff or Coordinator role 

• Skilled Trades 

• Technicians 

• No supervisory roles 

• Must perform duties consistent with one of the FLSA  exemptions:  Administrative,  Professional, Executive, Computer, Outside Sales, or Teaching exemption (See the  FLSA exemption chart for more information) 

 

Diedri Garrett, PHRHuman Resources Consultant

WebsterRogers LLPDgarrett@websterrogers.com

Emma Ruth Brittain, EsquireAttorney

Thomas & Brittain, P.A.ERBrittain@myrlaw.com

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