Compliance With The FLSA:
What You Don’t Understand Can Hurt You
Franklin G. Shuler, Jr., Esq.
Turner Padget Graham & Laney
803-227-4242
[email protected]
Why Are We Here?
To avoid getting caught
in a big storm with a small boat
Agenda
 Upcoming change to the Exempt rules
 Other traps for the unwary
The Basic of the
Fair Labor Standards Act
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Minimum wages
Overtime
U.S. Department of Labor oversight
Broad coverage
No South Carolina version
DOL or aggrieved employee can sue
No administrative prerequisites
Prohibits retaliation
2 or 3 year statute of limitations
Liquidated damages for willful violations
Civil/criminal penalties/attorneys’ fees
Personal, individual liability !
Complaints Are Up
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400% increase in complaints since 2000
1,000 new DOL employees/investigators
DOL finds violations 79% of complaints
$8,900/complaint
Recent Verdicts
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Farmers $210m
Starbucks $110m
Pepsi $25m
Coca-Cola $20m
Shoney’s $18m
U-Haul $7m
FLSA Settlements
• $5,742 per employee
• 80% of class actions lasted 5 or more years
• Brinker Restaurant Group -- $56.5m
($523/employee)
• Walgreen -- $23m ($575/employee) (7 years)
• City of Los Angeles -- $26m (meal/rest breaks)
The Call for Changes to Classifying
Employees as Exempt
• March 2014 – President Obama calls for
changes to the FLSA (wage & hour)
regulations
– Law has been in effect in since 1938
– Essentially unchanged
– Workplace has changed
– Way law is kept current is through changes to
regulations
Understanding the Regulation
Making Process
• Regulations are not the same as law
– But will be normally enforced if they draw essence from statute
• Process is for Agency to issue proposed
regulation in Federal Register
– Invite comments
– Issue final regulation
– Comments of the agency in addressing the comments with
respect to the comments from all sides and puts ‘”flesh” on the
“bones” of the regulation
The Regulation in Question
• President Obama sought two changes
– Primary duty test
• DOL punted
– Minimum salary for exempt employees
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Only changed twice, 1979 and 2004
Has not kept with minimum wage or inflation
Was due to change
One standard for entire country
The Revised Standard is Announced
• Proposed regulation was issued July 6,
2014
• 200,000 comments
– One commenter asks how many different ways can
you say “bad,” “awful” and “you gotta be kidding”
– Last time amended (2004) on 60,000 comments
The Regulation As Issued
• Change announced on May 18, 2016
• Will become effective December 1, 2016
• Still gives you chance to figure out best
way to comply
Dollars and Sense?
• After December 1 must be paid a minimum $913 weekly ($47,476
per year) in order to be exempt
• Still must met the tests requirements based on the Executive,
Administrative, or Professional exemptions.
• Salary minimum will be updated every three years based on
economic conditions
• Nondiscretionary bonuses and incentives, including commissions,
may count toward 10 percent of the threshold pay
• Anyone making $134,004 or more is exempt from the overtime rule,
regardless of job duties so long as they regularly performs any one
or more of the exempt duties or responsibilities of an executive,
administrative or professional employee. That’s up from $100,000.
Preparing for the Future
• Identify all exempt employees who make less than
$47,476
• Compliance options (pro/cons)
– Increase the exempt employees wage
• Easy, but costly
– Convert to non-exempt
• Potential effect on morale
• Limit overtime/hire more part-time employees
• Develop a message
– Both personal and credit union wide
Compliance Option 1
• Raise Salary to $47,476 annually/$913
weekly
– Did you know (according to DOL) 60% of
exempt employees do not work OT!
– 19% occasionally work some OT
– 20% routinely work OT
• Which category is your employee?
Compliance Option 2
• Convert Employee to hourly
– Divide by 2080 to get average hourly wage
– Will actually result in higher wage if employee
routinely works overtime
– Assume annual salary of $35,000
• Results in hourly wage of $16.825 for the first forty hours and
an overtime rate of $25.24 ($16.835 x 1.5). If this person
works 3 hours overtime each week, this method increases
the credit union’s costs for this employee by $75.71 per
week. May not sound like much until you multiply by the 52
weeks in the year and find out it totals $3937.
Compliance Option 3
• Figure out actual hourly wage of exempt employee
– Take current salary and divide by 52, which gives you their
weekly salary.
– You then take the weekly salary and divide it by 40 plus the
number of hours they typically work (for example three)
multiplied by 1.5.
– Employee is paid $35,000 a week and typically works 3 hours of
overtime. 40 x 52 = 2080, 3 x 1.5 x 52 = 234; 2080 + 234 = 2314
– To come up with the new hourly rate we divide $35,000 (salary)
by 2314 (expected number hours need to pay for).
– The new hourly figure is $15.125.
– This way you end up paying the employee roughly the same
amount you did when he/she was salaried.
Compliance Option 4
• DOL Guidance for Private Employers on Changes to
the White Collar Exemptions in the Overtime Final
Rules on pages 6, 7 lists several options involving
paying overtime above a salary
– Very tricky
– Must be exactly right or you will end up violating the FLSA
– Should not use one of these methods unless you have it
reviewed by counsel or consultant and understand it
All for One and One for All
• Should you treat some in a class one way
and others another?
• Potential consequences for those
classified as exempt
Standard Duties Test
EXECUTIVE
ADMINISTRATIVE
PROFESSIONAL
The employee’s “primary duty” must be
managing the enterprise, or managing a
customarily recognized department or
subdivision of the enterprise (and managing 2
full- time employees as well).
The employee’s “primary duty” must include the
exercise of discretion and independent judgment
with respect to matters of significance.
The employee’s “primary duty” must be to
primarily perform work that either requires
advanced knowledge in a field of science or
learning or that requires invention, imagination,
originality, or talent in a recognized field of artistic
or creative endeavor.
Additional requirements provided in 29 CFR 541
Subpart B
Additional requirements provided in 29
CFR 541 Subpart C
Additional requirements
provided in 29 CFR 541
Subpart D
Salaried Basis Test
 destroying exempt status
 full day absence
 jury duty
 major disciplinary issue
 docking / equipment
 salary ≠ exempt
 job title is irrelevant
Common Mistakes
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working “off-the-clock”
no comp time in private sector
averaging pay during bi-weekly pay cycle
failure to account for bonuses & commissions in
calculating overtime pay
travel pay rules
break rules
working during meal time
clocking in / clocking out
Wage and Hour Tips No. 1
1) Require accurate/daily timekeeping
2) Do NOT destroy/falsify records
3) Record and pay for all hours actually
worked
4) Do NOT dock for breaks
5) Prohibit off-the-clock work for nonexempts (lunch, home, voice/e-mails)
Wage and Hour Tips No. 2
1) Do NOT retaliate/threaten
2) Do NOT discipline employees for
discussing wage issues
3) Do NOT allow non-exempts to “donate”
or “volunteer” time
4) Seek advice/counsel from HR on
wage/hour issues
QUESTIONS
AND
ANSWERS