FLSA Exempt and NonExempt Employees March 8 2018

FLSA Exempt and Non-Exempt Employees March 8, 2018 Pam Crawford, Attorney, RHIA, SPHR, SHRM-SCP Stephanie Dassinger, Attorney; Deputy Director, ND League of Cities

AGENDA Compensation Basics Terms Government Entities-Compensatory time How to determine if an employee is exempt or non exempt from overtime FLSA Recordkeeping Requirements Current Status of DOL salary test changes

COMPENSATION BASICS Every employer shall pay to each of the employer’s employees a wage of at least $7. 25 per hour (ND) Overtime pay must be paid at one and one-half times the regular rate of pay to any employee not exempt from overtime rules for hours worked in excess of forty hours in any one work week NOTE: Even if overtime had not been approved, the employee MUST be paid for hours worked Compensatory time may be given instead of overtime pay for State and local government employees under certain conditions

TERMS REGULAR RATE OF PAY The hourly rate actually paid to an employee for the normal, non-overtime workweek for which the person is employed Must be an hourly rate for purposes of determining overtime pay, whether employee is paid a salary or by the hour. (If salary, the hourly rate is generally calculated by dividing the salary amount by 40 hours) There are several items that are excluded from the regular rate of pay such as reimbursement of expenses or gifts

TERMS EXEMPT FROM OVERTIME The employer is not required to pay an employee for hours worked over 40 in a work-week COMPENSATORY TIME Employers compensate employees with time off instead of overtime pay WORK-WEEK Fixed and regularly recurring period of 168 hours-seven consecutive 24 -hour periods. It may begin and end on any day (example: starts Sunday at 12 a. m. and ends Saturday at 11: 59 p. m. ) Established by the employer Potential differences for public safety personnel

COMPENSATORY TIME IN LOCAL GOVERNMENTCONDITIONS Earned at the same rate (one and one-half hours for each hour of work for which overtime pay would apply) There must be an agreement or understanding between an employee and the agency, prior to the performance of work, to substitute compensatory time-off for overtime pay Compensatory time accrual is limited to 240 hours (or 480 hours for certain employees who work in public safety, emergency response or seasonal activities in a large City with more than 5 such employees in each category) Upon reaching the limit, an employee must either receive payment for additional hours of overtime worked or use some of the compensatory time before accruing additional compensatory time Unused compensatory time off must be paid upon separation. The rate of pay must be either the employee's final regular rate or the average regular rate during the last three years of employment, whichever is higher.

FLSA SPECIAL OVERTIME RULES FOR LOCAL GOVERNMENTS Special Provisions for Public Safety – Fire and Law Enforcement Exemptions from FLSA for “small departments” Departments can implement longer work periods Seasonal activity Allows accrual of up to 480 hours of compensatory time Includes work during periods of significantly increased demand, which are of a regular and recurring nature. (Examples: processing tax returns, road crews during snow plowing season or road construction) For purpose of this definition, Seasonal Activity does not include parks and recreation activities, sports facilities, other programs open for specific and limited periods of time Occasional and sporadic employment Employees who freely choose to work part-time for the local government in a different job than their normal job on an occasional and sporadic basis do not need to be paid time-and-one-half for the additional hours if the duties in the two jobs are substantially different

DETERMINING IF A POSITION IS EXEMPT FROM OVERTIME PAY Determine if the position is an elected official-if so, it is exempt from FLSA overtime pay (under federal and state law) Apply FLSA Tests-BOTH Salary and Duties Tests Salary Duties Tests ADMINISTRATIVE EXECUTIVE PROFESSIONAL LEARNED PROFESSIONAL CREATIVE PROFESSIONAL COMPUTER HIGHLY COMPENSATED

WHAT DOES IT MEAN TO BE PAID ON A SALARY BASIS? Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work performed nor is compensation reduced because of absences less than a full day due to personal reasons other than sickness or disability NOTE there is an exception to the absences issue for the public sector. If the public agency has a personal leave and/or sick leave system that employees use for partial-day absences, deductions MAY be made without affecting the salary basis test if one of the following applies: Permission for its use has not been sought or has been sought and denied; Accrued leave has been exhausted; or The employee chooses to use leave without pay

SALARY TEST Employee is paid at least $23, 660 per year ($455 per week), paid on a salary basis. Being paid on a salary basis does not automatically make the position exempt from overtime pay. The position must meet the salary test and a duties test.

DUTIES TEST If the Salary Test is met, then duties test is reviewed “Primary Duty” the principal, main, major or most important duty that the employee performs Factors to consider: the relative importance of the exempt duties as compared with other types of duties the employee's relative freedom from direct supervision the relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee the amount of time spent performing exempt work can be a guide (but not required under the law)-an employee spends more than 50% of the time performing exempt work Look at Administrative, Executive, Learned Professional, Creative Professional, Computer and Highly Compensated Tests

ADMINISTRATIVE DUTIES ADMINISTRATIVE Exemption must meet both of the following (in addition to the salary test) 1. Primary duty consists of performing office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers 2. Work includes the exercise of discretion and independent judgment with respect to matters of significance

ADMINISTRATIVE DUTIES – MANAGEMENT POLICIES OR GENERAL BUSINESS Employee’s primary duty is to administer the business affairs of the city, most likely an administrator Generally work performed in the areas of finance, accounting, insurance, purchasing, human resources, computer network, internet, and database administration is likely to be seen as administering the business affairs of the city

ADMINISTRATIVE DUTIES – EXERCISE DISCRETION AND INDEPENDENT JUDGMENT Does the employee have authority to formulate, interpret, or implement management policies? Does the employee carry out major assignments and perform work that affects business operations to a substantial degree? Does the employee have authority to commit the city in matters with a significant financial impact? Does the employee have authority to waive or deviate from established policies and procedures without prior approval? Does the employee have authority to negotiate and bind the company on significant matters? Does the employee provide expert advice to management? Is the employee involved in planning long- or short-term business objectives? Does the employee investigate and resolve important matters for management? Does the employee handle complaints, arbitrate disputes, or resolve grievances?

EXECUTIVE DUTIES EXECUTIVE Exemption(Must meet all three of the following in addition to the salary test) 1. Primary duty consists of managing the enterprise or a customarily recognized department or subdivision of the enterprise 2. Customarily and regularly directs the work of two or more full-time employees or their equivalents (for example, one full-time employee and two half-time employees) 3. Has the authority to hire or fire other employees OR makes recommendations that carry particular weight as to the hiring, firing, advancement, promotion or any other change in status of other employees

EXECUTIVE DUTIES - MANAGING 50% of time duties such as: Interviewing, selecting, and training employees Setting and adjusting employee rates of pay and hours of work Directing employee work Evaluating employee performance Handling employee complaints/grievances Disciplining employees Planning work and determining techniques Determining materials, supplies, equipment, and tools to be used Planning and controlling the budget Providing for employee safety

EXECUTIVE DUTIES – DEPARTMENT OR SUBDIVISION A unit with permanent status and continuing function Not a group of employees assigned from time to work as a team on a specific project

EXECUTIVE DUTIES – PARTICULAR WEIGHT The city governing board gives the employee’s recommendation a certain amount of consideration Questions to ask: Is it part of the employee’s job duties to make hiring/firing/job change recommendations? How often does the employee make such recommendations? How often are the employee’s recommendations taken (vs. overridden)?

LEARNED PROFESSIONAL DUTIES LEARNED PROFESSIONAL Exemption must meet the following (In addition to the salary test) Primary duty must meet all of the following: 1. The employee must perform work requiring advanced knowledge 2. The advanced knowledge must be in a field of science or learning 3. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction Common examples are engineers and lawyers

CREATIVE PROFESSIONAL exemption must meet the following (in addition to the salary test) Primary duty consists of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work.

COMPUTER DUTIES TEST COMPUTER Exemption meets the following Primary duty consists of one of the following: The application of system-analyst techniques and procedures, including consulting with users to determine hardware, software or systems functional specifications The design, development, documentation, analysis, creation, testing or modification of computer systems or programs The design, documentation, testing, creation or modification of computer programs related to machine-operating systems A combination of these duties which requires the same level of skills NOTE: This exemption does NOT have to meet the salary basis requirement to regularly receive a predetermined amount constituting all or part of the employee's salary, which is not subject to reduction because of variations in the quality or quantity of work performed IF paid at least $27. 63 on an hourly basis.

HIGHLY COMPENSATED Exemption must meet all of the following: 1. Is paid an annual total compensation of $100, 000 or more, which includes at least $455 per week paid on a salary basis. The required total annual compensation of $100, 000 or more may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52 -week period, but does not include credit for board or lodging, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits. 2. Primary duty consists of performing office, nonmanual work. Note: No matter how highly paid, manual workers or other blue-collar workers, including nonmanagement construction workers, who perform work involving repetitive operations with their hands, physical skill and energy are not eligible for this exemption. 3. Customarily and regularly performs at least one of the exempt duties or responsibilities of the Executive, Professional or Administrative Exemption.

EXAMPLE 1 CITY MAINTNENACE SUPERVISOR City Maintenance Supervisor Compensation $1, 057 per week or $55, 000 per year Paid as salary and does not change based on quality or quantity of work

EXAMPLE 1 Continued City Maintenance Supervisor Duties Supervises 1 full time employee and 1 part time employee Train personnel in correct and safe methods and procedures necessary to accomplish work – 10% of time Operate graders, front-end loaders, backhoes, asphalt distributors, rollers, dump trucks, trenchers, and other equipment as needed – 50% of time Perform maintenance work such as street sweeping, lot mowing and asphalt street patching – 20 % of time Repair and replace water meters in homes and businesses – 5% of time Review and approve building permit applications – 5% of time Address and follow-up on resident grievances associated with city maintenance – 10% of time

EXAMPLE 1 ANALYSIS Salary Basis Test Does the city maintenance supervisor get paid by the hour? No – Move on to the next question Does the city maintenance supervisor get paid same amount each pay period regardless of quality or quantity of work? Yes – Move on to next question Does the city maintenance supervisor receive full salary for any week in which any work is performed regardless of the days or hours worked? Yes – Move on to Duties Test

EXAMPLE 1 ANAYSIS - CONTINUED Which duties test (Administrative, Executive, Professional, Creative)? Administrative and Executive

EXAMPLE 1 ANAYSIS – CONTINUED EXECUTIVE DUTIES Does the city maintenance supervisor get paid at least $455/week? Yes – paid $1, 057 per week Does the city maintenance supervisor regularly supervise two or more full-time employees? No – supervises 1 full-time employee and 1 part-time employee The city maintenance supervisor in this scenario is not an exempt employee under the executive duties test

EXAMPLE 1 ANAYSIS – CONTINUED ADMINISTRATIVE DUTIES Does the city maintenance supervisor get paid at least $455/week? Yes – paid $1, 057 per week Does the city maintenance supervisor perform primarily office or non-manual work directly related to management policies or general business operation of the city? No - Manual duties 75% of the time The city maintenance supervisor in this scenario is not an exempt employee under the administrative duties test

EXAMPLE 2 CITY AUDITOR City Auditor Compensation $779. 50 per week ($40, 534 per year) Paid as salary and does not change based on quality or quantity of work

EXAMPLE 2 - CONTINUED City Auditor Duties Does not supervise any employees Maintain all city records- 15% of time Maintain a complete record of all financial transaction of the city as prescribed by the state auditor – 60% of time Assist with coordination of activities amount various departments – 5% of time Reconcile monthly bank statements listing all deposits in transit and outstanding checks – 5% of time Prepare annual budget and submit estimates to authorized elected officials for approval - 10% of time Enforce policies as set forth by city council – 5% of time

EXAMPLE 2 ANALYSIS Salary Basis Test Does the city auditor get paid by the hour? No – Move on to the next question Does the auditor get paid same amount each pay period regardless of quality or quantity of work? Yes – Move on to next question Does the city auditor receive full salary for any week in which any work is performed regardless of the days or hours worked? Yes – Move on to Duties Test

EXAMPLE 2 ANAYSIS - CONTINUED Which duties test (Administrative, Executive, Professional, Creative)? Administrative, Executive and Professional

EXAMPLE 2 ANAYSIS – CONTINUED EXECUTIVE DUTIES Does the city auditor get paid at least $455/week? Yes – paid $779. 50 per week Does the city auditor regularly supervise two or more full-time employees? No – Does not supervise any employees The city auditor in this scenario is not an exempt employee under the executive duties test

EXAMPLE 2 ANAYSIS – CONTINUED ADMINISTRATIVE DUTIES Does the city auditor get paid at least $455/week? Yes – paid $779. 50 per week Does the city auditor perform primarily office or non-manual work directly related to management policies or general business operation of the city? Non-Manual work – Yes Management Policies or general business operation - Yes

EXAMPLE 2 ANAYSIS – CONTINUED ADMINISTRATIVE DUTIES Does the office or non-manual work require the exercise of discretion and independent judgment? Yes - city auditor implements policies, investigates and resolves important matters for management, assists in planning long or short term business objectives Under this scenario, the city auditor meets the administrative duties test and may be treated as employee that is exempt from overtime

FLSA RECORDKEEPING REQUIREMENTSEMPLOYEE INFORMATION Employee Information full name social security number address, including zip code birth date if younger than 19 sex occupation

FLSA RECORDKEEPING REQUIREMENTSEMPLOYMENT/WAGE INFORMATION Employment/ wage information workweek-time and day of workweek hours worked each day total hours worked each workweek basis on which employee is paid (hourly rate, weekly rate) hourly pay rate total daily or weekly straight-time earnings total overtime earnings for the workweek (pay or compensatory time) all additions to or deductions from employee’s wages total wages paid each pay period date of payment and pay period covered by payment

WHERE WE ARE TODAY Regarding 2016 Proposed FLSA Rules In May of 2016 the US Department of Labor (DOL) issued new rules relating to overtime rules which changed the salary test to $913/week ($47, 476/year). The rules were challenged in court. In Nov. 2016 a federal district court judge in Texas placed a temporary injunction effective nationwide, preventing the revised rules from taking effect on Dec 1, 2016 The matter was appealed to the 5 th Circuit Court of Appeals. On August 31, 2017 U. S. District Judge Amos Mazzant officially concluded that the FLSA overtime rule is invalid Decision has been appealed DOL intends to revise the rules and the proposed rule may be issued this year. It is speculated the salary threshold will be in the $30, 000 -$35, 000 range Until adoption of any new rules, we are operating under the current rules

CONTACT US Pam Crawford – pamcrawford@bis. midco. net Stephanie Dassinger – stephanie@ndlc. org