Getting Ready for the New Overtime Rules Presented by:

Alex Maultsby 300 North Greene Street, Suite 1400 Greensboro, NC 27401

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Classification: Exempt vs. Non Exempt

• Why does it matter? – Exempt employees are excluded from overtime pay requirements – Non-exempt employees are entitled to overtime (not exempt from the FLSA)

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FLSA Exemptions • In order to be classified as exempt under the “white collar” exemptions, three requirements must be met: • Minimum Salary – Currently = not less than $455/wk • Paid on a salary basis – without any improper deductions • Exempt Duties © 2016 Smith Moore Leatherwood LLP. ALL RIGHTS RESERVED.

FLSA Exemptions • Employees are exempt from the Act entirely if they fall within the Motor Carrier exemption • Any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service • Driving in interstate commerce • Performing safety-sensitive functions

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White Collar Exemptions • Executive, administrative, and professional • Highly compensated, computer, and outside sales

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White Collar Exemptions • Executive – Management of enterprise or dep’t – Direct the work of 2+ FT employees – Authority to hire/fire or recommend action – Currently -- Salary of at least $455/wk

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White Collar Exemptions • Administrative – Office or non-manual work related to mgmt, operations, or customers – Primary duty = exercise discretion and judgment with “matters of significance” – Currently -- Salary of at least $455/wk

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White Collar Exemptions • Professional – Learned Professional • Primary duty = work requiring advanced knowledge, that is predominantly intellectual, and requires exercise of discretion and judgment • Advanced knowledge is in a field of science or learning • Prolonged course of specialized academic training • Currently – Min. salary or fee basis of at least $455/week © 2016 Smith Moore Leatherwood LLP. ALL RIGHTS RESERVED.

White Collar Exemptions • Professional – Creative Professional • Primary duty is work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor • Currently -- Salary of at least $455/wk

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White Collar Exemptions • Highly Compensated Employees – Office/non-manual work – Currently – must be paid $100k or more annually • and at least $455/wk on salary/fee basis – Regularly perform at least one of the duties of an executive, administrative, or professional employee identified in the exemption test

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White Collar Exemptions • Outside Sales – Primary duty is making sales or obtaining orders or contracts for services; and – Regularly work away from employer’s place of business. – Not subject to minimum salary requirement.

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White Collar Exemption • Computer Employee – Currently -- Salary of at least $455/week or fee basis of at least $27.63 per hour – Computer systems analyst, programmer, software engineer, or other similarly skilled worker performing specified duties relating to analysis, development, design, testing, etc.

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New FLSA Overtime Rules – Nuts & Bolts For Executive, Administrative, & Professional Exemptions – Raises salary threshold >100% • From $455 per week – equivalent of $23,660 per year • To $913 per week – equivalent of $47,476 per year

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New FLSA Overtime Rules – Nuts & Bolts

For Highly Compensated Employees – Raises total annual compensation requirement • From $100,000 • To $134,004 – or the 90th percentile of full-time salaried workers nationally

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FLSA Coverage • Motor Carrier Act Exemption from Overtime – Mandatory overtime compensation does not apply to any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service – Driving a vehicle over state lines is the clearest example of driving in interstate commerce – but it is not required (look to practical continuity of movement)

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FLSA Coverage • Motor Carrier Act Exemption – Exemption may apply to all drivers if all drivers were likely or reasonably have been expected to drive in interstate commerce – Does the employee’s position affect safety of operations?

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Wells v. AD Transport Express, 2016 WL 3213396 (ED Mich. 2016) • Wells worked as driver and as troubleshooter (desk job) • Argued that he did not drive interstate much and should received overtime • Court applied 4 month rule – He had driven interstate within 4 months – No overtime

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Mazzarella v. Fast Rig, 15-3116 (3d Cir. 2016) • Overtime claim • Hauling fracking water within PA • Testimony that sometimes fracking water pumped from ponds and hauled out of state • Not enough to prove practical continuity of movement. • Entitled to overtime.

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FLSA Collective Actions • Potential Claims – Low hurdle for a plaintiff to overcome to get a class certified and notice sent out to potential members – Defense costs quickly add up in defending a lawsuit – FLSA collective action claims are rising in all industries but it appears that the transportation industry is a major target

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FLSA Collective Actions • Potential Claims – Employees are entitled to unpaid overtime and possibly two-times that amount as liquidated damages – Employees are also entitled to reasonable attorney fees and costs

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Collective Actions • Koehler v. Freightquote.com, 2:12-cv-02505 (D KA 2016) – Proposed settlement of class for $5.1M – Judge rejected for nondisclosure/confidentiality restrictions and disagreed with payment to class reps – $1.7M of this was attorney’s fees

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New FLSA Overtime Rules – Nuts & Bolts • USDOL will increase the salary threshold – every 3 years • By January 1, 2020 – Standard salary threshold expected to be > $51,000 – Continuing to increase every 3 years thereafter

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Identify Exempt Positions Under Threshold • Identify exempt positions where employees make less than $47,476 – Can include non-discretionary bonuses and commissions • Up to 10% of required salary level • If paid quarterly or more frequently – For exempt positions making less than new threshold • Feasible to raise salaries?

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Analyze Options If No Longer Exempt • Option A: – Divide current salary by 40 hours, and pay at an hourly rate – And pay overtime pay, when applicable • Option B: – Convert EE to hourly, based on actual hours works – Attempt to make net cost the same • Using lower rate to account for expected overtime – **Requires reliable information about hours worked

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Analyze Options If No Longer Exempt • Option C: – Convert EE to salaried non-exempt – And pay overtime pay, when applicable • Option D: – Institute a fluctuating workweek method – And pay overtime pay (at half regular rate) for hours in excess of 40 in a workweek – Must have: varying work schedules, fixed salary, regular rate above minimum wage, mutual understanding, consistent with state law

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Reclassification of EEs: Factors To Consider • Costs to absorb and manage overtime • Morale issues • Potential inconsistencies – if EEs in same position classified differently because paid differently based on seniority, local economics, other factors • Workload shift – from hourly to exempt managers • Potential use of independent contractors

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Reclassification of EEs: Factors To Consider • Potential effects on benefits – Examples: • accrual of PTO • rules relating to year-end cash-outs • LTD or life insurance • Policy restricting overtime • Ability to prospectively change compensation – Employment contract – State law

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Communication Plan & Training • Explain reason for change • Focus on positive: – Paid for time worked “after hours” • Be prepared for the fallout – Loss of status – Tracking time – Loss of flexibility

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Communication Plan & Training • Train non-exempt employees to track & report time – Reset manager expectations re work after hours – Use of phones/laptops • Travel for non-exempt employees • Manage Overtime

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Alex Maultsby Partner | Greensboro & Charlotte

T (336) 378-5331 [email protected]

© 2016 Smith Moore Leatherwood LLP. ALL RIGHTS RESERVED.