Government, Education, & Regulation:

FLSA IN THE PUBLIC SECTOR

Michael MandelPARTNER, MCGUIREWOODS LLP

SPECIALIZATION:

LABOR & EMPLOYMENT

Lynne LevyKRONOS, INC.

SENIOR PRODUCT SPECIALIST

CHANGE MANAGEMENT CONSULTANT

OUR SPEAKERS

What we’ll cover:THE NEXT HOUR

FLSA: Present vs.

The Final Ruling

The Impact on

Your Organization

Things to

Consider: Options

& Opportunities

Your Strategy:

How Technology

Can Help

We’ll conclude with a Q&A. Don’t forget to submit your questions!.

www.mcguirewoods.com

DOL’S NEW FINAL OVERTIME RULES

Government/Public Sector/Education

Presented by

Michael D. Mandel (Los Angeles)

FLSA OVERVIEW

• 1938 New Deal Legislation

• Goal: increase jobs at living wage

• Minimum wage

• Overtime compensation

• Child labor prohibitions

FEDERAL MINIMUM WAGE

• Statutory Minimum

• For each “hour worked”

• For the first 40 hours in each workweek

$7.25

FEDERAL OVERTIME PAY

• One and one-half times

• The “regular rate” of pay

• For all “hours worked” over 40

• In any given workweek

• Unless deemed “Exempt”

• Unless state law differs

KEY WHITE COLLAR EXEMPTIONS

• Executive

• Administrative

− Academic Administrative

• Professional

− Teacher

• Not as broad as they sound

WHO IS “EXEMPT”?

• The FLSA doesn’t define “executive,” “administrative,” or

“professional”

− DOL instead is empowered to “Define and Delimit” terms via

regulation

• Employers bear burden of establishing applicability of any

exemption

− Job titles and job descriptions alone don’t determine exempt

status

− Paying a salary alone doesn’t make someone exempt

GENERAL TEST FOR EXEMPT STATUS• Test:

1. Employee must be paid predetermined and fixed salary not subject

to reduction due to variations in quality or quantity of work

performed (“Salary Basis Test”);

2. Salary paid must meet minimum specified amount, for certain

exemptions (“Salary Threshold Test”); and

3. Employee’s duties must primarily involve certain exempt functions

(e.g., Executive, Administrative, etc.) as defined by regulation

(“Duties Test”)

• Salary Threshold Test – increasing under new DOL rule

• Duties Test – no change under new DOL rule

STATE AND LOCAL GOVERNMENT

• No blanket exemption from overtime for state & local government

workers or other public sector workers

− But general white collar exemptions can apply

• FLSA permits state & local governments to arrange for employees

to earn “comp time” instead of cash payments for overtime

• Small-agency exemption for police and fire

− Protection of employees of agencies with fewer than five employees

HIGHER EDUCATION INSTITUTIONS• Salary level and salary basis don’t apply to bona fide teachers

− Includes professors and adjunct instructors

• Academic administrative employees (department heads, academic

counselors, etc.) subject to alternative salary level to be exempt

− Exempt from overtime if paid salary at least equal to entrance salary for

teachers in educational institution

• Other white-collar exemptions may apply still

• Public universities may qualify as “public agencies” who can

compensate overtime-eligible employees with “comp time”

DOL’S LAST RODEO – 2004 REGULATIONS

• DOL updated salary threshold test 7 times since 1938

• 2004 test for Executive, Administrative and Professional (EAP)

exemptions set at $455/ week

− $23,660 annually

− 3x the prior amount

• 2004 regulations created a new exemption for Highly-

Compensated Employees (HCE)

− Minimal duties test

− Must earn $100,000+ in total annual comp

DOL’S 2014-16 RULEMAKING PROCESS

• 3/13/2014: Presidential memorandum

directing DOL to update white collar

regulations

• 7/6/2015: DOL published new

proposed OT rule

• 270,000+ individuals and

organizations submitted comments

during 60-day period

DOL OT PROPOSED RULE

• Salary threshold change for “White-Collar” exempt employees

• Set at 40th percentile of weekly earnings for FT salaried

workers

• Proposed to double

− From $23,660 to $50,440

• Proposed new mechanism for annual automatic increases

DOL OT FINAL RULE

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

− Doubled but slightly lower than proposed

− No phase-in

• Allowed to count non-discretionary bonuses and incentives/

commissions towards salary basis

− Limited to 10% per quarter

• Salary threshold for HCE employees increased from $100,000 to

$135,004

− Slightly higher than proposed

DOL OT FINAL RULE

• Effective 12/1/16, (i.e. post-election)

• Provides automatic increases to salary threshold every 3 years

(vs. annually as proposed), to start 1/1/20 (published at least 150

days prior)

• No changes to the “duties” tests

• No new examples of exempt work

• No new limits on the amount of “non-exempt” work an exempt

employee can perform

IMPACT ON STATE/LOCAL GOVERMENTS AND PUBLIC AGENCIES

• Generally no impact beyond that which impacts private employers

− Hourly employees not impacted;

− Employees whose regular workweek is 40 hours or less not impacted;

− Employees who don’t pass “duties” test not impacted;

− Police and fire personnel: those who work for agencies with five or

fewer personnel will continue to be exempt;

− “Comp time” arrangements not impacted

IMPACT ON HIGHER EDUCATION INSTITUTIONS

• No changes to rules governing exempt status of teachers and

academic administrators

− Includes graduate teaching assistants whose primary duty is teaching

• Employees not unique to educational setting (i.e., food service managers

or bookstore employees) impacted to same extent as private sector

• White collar employees who aren’t teachers or academic admins may still

qualify for exempt status

− Athletic trainers, librarians, accountants, HR

− Postdoctoral fellows whose primary duty is not teaching may be

exempt if they meet new minimum salary level

IMPACT ON HIGHER EDUCATION INSTITUTIONS

• Graduate Teaching Assistants:

− will continue to be exempt from overtime to extent their primary duty

is teaching

• Research Assistants:

− DOL doesn’t consider them (not subject to FLSA) so long as they’re

working under faculty member’s supervision while obtaining degree

• Student Residential Assistants

− DOL doesn’t generally consider student RAs as employees if

receiving reduced room & board charges or tuition credits

THINGS TO THINK ABOUT: OPPORTUNITIES

• Evaluate workforce and reclassify employees as needed

− Remember: to be exempt from OT, employees must meet the

Duties Test as well (not just Salary Basis Test & New Salary

Threshold)

− Now is ideal time to reclassify employees earning below the

New Salary Threshold as Non-Exempt without raising

eyebrows about why change is taking place

− Also provides opportunity to settle any existing claims/

litigation over alleged misclassification

THINGS TO THINK ABOUT: OPTIONS

1. Raise salary for applicable exempt employees

2. Convert to hourly and pay overtime

1. Cut/monitor hours to limit OT*

2. Cut other jobs/hrs

3. Hire additional staff to evenly distribute work to avoid OT

3. Change to salaried non-exempt

1. Estimate current hours with OT + “back into” hourly rate

2. “Pilot” track current hours now to help estimate

3. Reevaluate periodically

THINGS TO THINK ABOUT: POLICIES AND PROCEDURES

• Evaluate payroll, overtime, timekeeping, and travel policies &

systems

• Provide training on relevant policies & procedures to employees

who will become non-exempt:

− May need to be re-acclimated to tracking hours of work, recording

vacation days, sick days, and other PTO

− No off-the-clock work!

− Remote work/work from home?

• Provide training to managers who will have newly-classified non-

exempt employees

THINGS TO THINK ABOUT: STATE LAW• For example, California:

− New fed. salary threshold will be higher than threshold under CA Law

− Currently $41,600 in CA, increasing to $43,680 on 1/1/17

− CA doesn’t count non-discretionary bonuses and incentive payments

toward threshold

− CA doesn’t recognize HCE Exemption

− CA’s “Duties” tests remain different than fed. law

• Employers must comply with new fed. rule and applicable state

wage & hour laws – whichever is most protective for employees

Your Workforce Management Strategy & The FLSA Changes

Lynne Levy

Kronos Inc.

Legal Disclaimer

• The information provided herein is the property of Kronos Incorporated and is confidential. All product

information is being provided for informational purposes only, and any product information pertaining to

functionality that is not currently available (“forward-looking product information”) is provided as a

general outline of the future direction of our products, and, as such, is subject to change. Any forward-

looking product information is not a commitment to deliver any material, code, or functionality, and

should not be relied upon in making purchasing decisions. The adoption, development and timing of

release of any feature or functionality described in any forward-looking product information set forth

herein remain at all times at the sole discretion of Kronos.

• All information pertaining to the any legal requirement discussed herein is provided for informational

purposes only and not for the purpose of providing legal advice. The application of specific laws,

regulations or court decisions may affect certain organizations in a manner that is materially different

than as discussed or contemplated herein, and, therefore, the application of any specific law, regulation

or court decision should be reviewed carefully with a qualified attorney.

Executive Summary

• Situation:

− FLSA changes will impact an organization’s workforce management strategy

− Organizations need to balance business needs, compliance risk, productivity,

and labor costs when building workforce strategy

• Complication:

− Compliance and productivity challenges with manual workforce management

environments

• Resolution:

− Kronos can help organizations optimize their workforce, minimize compliance

risk, improve productivity and reduce labor costs

Workforce Management Strategy

Assess Impact, Build Strategy

• Do you understand the details

of regulation?

• Who is impacted?

− How many hours do these

employees currently work?

• What is the budget impact?

• How will you track the time of

the impacted employees?

• What is your strategy?

− Pay overtime? At what rate?

− Hire more employees? Full-

time or part-time?

− Increase salaries?

− Reduce hours?

• How do these factors impact

your business metrics?

Challenges with Implementing Strategy

Manually adjust

employees and rules

Building optimized schedules

Managing overtime

hours

Auditing and

reporting

Workforce Management Strategy

An organization’s FLSA plan should be evaluated as part of its overall

approach to workforce management, including strategies for managing

labor costs, minimizing compliance risk, improving productivity, and

enhancing employee engagement.

LABOR

COST

COMPLIANCE PRODUCTIVITY ENGAGEMENT

Time and Attendance / HR / Payroll TechnologyEase administration of employee changes

• Through the use of employee profiles, simply

and efficiently:

− Adjust employees to Non-Exempt

− Update pay rules for employees

− Calculate new overtime rates

Effectively manage, monitor and adjust.

Scheduling TechnologyOptimize schedules

• Build a best-fit schedule automatically

− Business needs

− Compliance

− Employee requirements

− Union regulations

− FLSA / ACA

• Flag potential compliance issues proactively

Build the best-fit schedule based on the overall business and

compliance strategy.

Workforce Management TechnologyGain insight through reporting and auditing

• All actions and time points audited

• Historical and real-time reports available

to enable managers to proactively

manage overtime

• Dashboards for insight into overtime

trends

Understand when employees are projected to cross overtime thresholds.

Time and Attendance TechnologyManage Overtime

• Enable employees attest to time

• Interpret and automate time calculations

centrally

• Receive proactive notification of potential

compliance issues

• Minimize compliance risk by full automation

of time from punch to payroll

Simplify the administration & enforcement of policies.

What Should You Do Right Now?

• For employees who may need to be reclassified, do you know how

many hours they currently work?

• If not:

− Consider taking steps to track hours to assist with modeling post-

reclassification pay

− Train employees on how to track their time

− Ensure time sheets contain an acknowledgement that time sheets are

accurate and reflect all time worked

− Examine if changes will impact benefits or other forms of compensation

© KRONOS INCORPORATED │ August 24, 2016 │

Questions?

• Lynne Levy

− lynne.levy@kronos.com

• Michael Mandel

− 310.315.8202

− mmandel@mcguirewoods.com