Webinar Wednesdays HR IN OVERTIME Recap of FLSA

Webinar Wednesdays HR IN OVERTIME: Recap of FLSA Rules and Overtime Basics Trisha Gibo, Esq. November 2016 envision, strategize and actualize

DISCUSSION TOPICS • • • Definition of “Exempt Employee” Under New Regulations Potential Limitations on Changes to FLSA Regulations Best Practices on Analysis of your Workforce Prepare for Change to your Workplace Overtime Calculation Consequences for Misclassification 2 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Exempt from minimum wage requirements – Hawaii minimum wage currently: $8. 50/hour – Increase to $9. 25/hour on January 1, 2017 • Exempt from overtime requirements • Exempt status determined by statutory test – Salary Test • Salary Basis • Salary Level – Primary Duties Test 3 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Salary Test: Salary Basis – Regularly receives a predetermined amount of compensation without regard to quality or quantity of work – Must be paid the full salary for any week in which the employee performs any work – Need not be paid for any workweek when no work is performed 4 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Salary Test: Salary Basis – Special exceptions for certain categories • Computer employees, doctors, lawyers, outside salespersons – Exemptions for highly compensated employees (HCE) • Current HCE total compensation at least $100, 000 • Effective 12/1/16 - HCE total compensation at least $134, 000 5 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Salary Test: Salary Level – Current regulations • Minimum salary is $455/week ($23, 660/year) – Effective 12/1/2016 • Minimum salary will be $913/week ($47, 476/year) – Applicable Exemptions: • • 6 Executives Administrators Professionals Computer Professionals (? ) Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Salary Test: Salary Level – Applicability to Part-Time Employees • New regulations do not allow for proration for part-time employees – Included/Excluded in Salary • Excludes boarding, lodging, or other facilities (i. e. benefits) • May include nondiscretionary bonuses, incentive payments and commissions for up to 10% of the salary requirement if paid quarterly 7 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Primary Duties Test – Principle, main, major or most important duty employee performs • • Relative importance of duties Amount of time spent on exempt work Employee’s relative freedom from direct supervision Relationship between employee’s salary and wages paid to other employees – Time spent not sole test, although 50% or more of time spent performing exempt work satisfies requirement – Regulations also provide other guidelines 8 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

DEFINITION OF EXEMPT EMPLOYEE • Remember: – Salaried employees are not always exempt employees – “Managers” or “supervisors” are not automatically exempt – Only non-exempt employees should to fill out timesheets – Non-exempt employees must make at least minimum wage despite their method of payment (salary, commission, combination, etc. . . ) 9 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

POTENTIAL LIMITATIONS ON CHANGES • Trump Administration – Not likely to change 12/1/16 effective date • Further changes to regulations require notice-and-comment periods – Potential changes after Trump takes office on 1/20/17 • May include small-business exception • May eliminate triennial automatic increases in salary level – Automatic updates begin January 1, 2020 – Next increase will be to over $51, 000/year – USDOL will post new salary levels 150 days in advance of their effective date, beginning on August 1, 2019 10 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

POTENTIAL LIMITATIONS ON CHANGES • Lawsuits – Lawsuit filed by 21 states (led by Texas) • Request preliminary injunction to block FLSA overtime rule • Argue that FLSA does not authorize salary-level test or triennial automatic increase in salary threshold • Unconstitutional infringement on state rights – U. S. Chamber of Commerce + 50 business groups • Argue USDOL exceeded authority when passed the rules • Request expedited decision by Texas federal court – Cases consolidated by Federal District Court in Texas • Decision is still pending with court • Decision will not likely be issued before 12/1/16 11 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

BEST PRACTICES FOR ANALYSIS OF POSITIONS • Identify all exempt employees that make less than $913/week ($47, 476/year) • Reassess duties to ensure proper classification as exempt • Determine whether the company will either: – Increase the position’s pay to $913/week – Eliminate exempt level duties – Reclassify as non-exempt & leave duties and salary as-is • Classify all individuals in a position the same – Do not make some employees in a job classification exempt and others non-exempt 12 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

PREPARE FOR CHANGES TO YOUR WORKPLACE • Timesheet and Recordkeeping Training – Adding or eliminating timesheet requirements – Maintaining accurate records for overtime hours worked • Review Overtime Policies – Prior approval from supervisor before working overtime – Disciplinary action for violation of the policy • Anticipate Engagement Issues – Proper communication with employees – Loss in productivity due to “demotion” – Low morale due to decrease in the number of overtime hours 13 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Myths • Reality – Overtime paid for work in excess of 8 hours per day – Calculated using base hourly wage – Based on work schedules set by company 14 – Overtime only required after 40 hours in work week – Based on regular rate – Must compensate for all hours worked • Duty hours • Hours controlled • Attendance required Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Overtime – Employers are required to pay non-exempt employees overtime for all hours worked in excess of forty (40) in the work week – Overtime Rate = 1. 5 x Regular Rate – Regular Rate • • 15 All compensation in work week ÷ total hours worked in work week Includes all payments made to or on behalf of the employee Includes reasonable cost of board, lodging or other facilities (benefits) Tipped employees – includes amount of tip credit properly claimed by employer Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Hourly – Single Rate – More than one rate: weighted average regular rate – More than one rate: time-and-ahalf for specific work • Piece Rate – Time-and-a-half for overtime hours worked – Premium piece rate 16 • Combo Hourly & Piece Rate • Day Rate or Job Rate • Salary – Time-and-a-half for overtime hours worked – Fluctuating work week • Commissions Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Hourly – Single Rate – Standard time-and-a-half for overtime hours worked – Example: • $10. 00/hour • Worked 44 hours in work week • Overtime Rate = 1. 5 x Hourly Rate = 1. 5 x $10. 00 = $15. 00/hour • Total Comp = ($10. 00 x 40 hours) + ($15. 00 x 4 hours) = $400. 00 + $60. 00 = $460. 00 17 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Hourly – More than One Rate in Same Week – Option 1: Weighted Average Regular Rate – Example: • Job A: $10. 00/hour and Job B: $15. 00/hour • Worked 30 hours in Job A + 20 hours in Job B = 50 hours total • • 18 Gross Wages = ($10. 00 x 30 hrs) + ($15. 00 x 20 hrs) = $600. 00 Weighted Average Regular Rate = $600. 00 ÷ 50 hours = $12. 00/hour Overtime Rate = 0. 5 x $12. 00 = $6. 00/hour Total Comp = $600. 00 + ($6. 00 x 10 overtime hours) = $600. 00 + $60. 00 = $660. 00 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Hourly – More than One Rate in Same Week – Option 2: Time-and-a-half for specific type of work – Example: • Job A: $10. 00/hour; Job B: $15. 00/hour • Worked 30 hours in Job A + 10 hours in Job B + 10 OT hours in Job B • Overtime Rate = 1. 5 x Job B Rate (15. 00) = $22. 50 • Total Comp = ($10. 00 x 30 hrs) + ($15. 00 x 10 hrs) + ($22. 50 x 10 OT hrs) = $300. 00 + $150. 00 + $225. 00 = $675. 00 19 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Piece Rate (Option 1 – overtime rate) – Total Earnings + (0. 5 x Regular Rate) for all OT hours worked – Example: Piece Rate = $0. 45/piece and produced 100 items that week Worked 45 hours in work week Total Weekly Earnings = ($0. 45 x 100 items) = $450. 00 Regular Rate = Total Weekly Earnings ÷ Total Hours Worked = $450. 00 ÷ 45 hours = $10. 00/hour • Overtime Rate = 0. 5 x Regular Rate = 0. 5 x $10. 00 = $5. 00/hour • Total Comp = $450. 00 + ($5. 00 x 5 hours) = $450. 00 + $25. 00 = $475. 00 • • 20 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Piece Rate (Option 2 – premium rate) – Agree to pay 1. 5 x piece rate for each piece produced during overtime hours – Example: • Piece Rate = $ 0. 50/piece • Worked 45 hours in work week • 400 items produced (first 40 hours) + 100 items produced (OT hours) • Overtime Piece Rate = 1. 5 x $0. 50 = $0. 75/piece during overtime hrs • Total Comp = ($0. 50 x 400 itms) + ($0. 75 x 100 itms) = $200. 00 + $75. 00 = $275. 00 21 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Hourly + Piece Rate – Previous agreement to pay 1. 5 time hourly or piece rate for specific type of worked during overtime – Example: • Hourly: $10. 00/hr; Piece rate: $0. 50/piece; 500 items produced • Worked 30 hrs in hourly job + 10 hrs in piece job + 10 OT hrs in hourly job • Overtime Rate = 1. 5 x $10. 00 = $15. 00/hour Total Comp = ($10 x 30 hrs) + ($0. 50 x 500 itms) + ($15 x 10 OT hrs) = $300. 00 + $250. 00 + $150. 00 = $700. 00 22 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Day Rates or Job Rates – Total Earnings + (0. 5 x Regular Rate) for all OT hours worked – Example: • $90/day despite hours worked; 5 days per week • Worked 9 hours per day • Regular Rate = Total Weekly Earnings ÷ Hours Worked = ($90 x 5 days) ÷ 45 hours = $10. 00/hour • Overtime Rate = 0. 5 x Regular Rate = 0. 5 x $10. 00 = $5. 00/hour • Total Comp = ($450. 00) + ($5. 00 x 5 OT hours) = $450. 00 + $75 = $525. 00 23 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Salary (Option 1) – Salary + (1. 5 x Regular Rate) for all OT hours worked – Example: • Employee is paid salary of $450 & worked 45 hours/week • Regular Rate = Total Weekly Earnings ÷ Hours Worked = $450. 00 ÷ 45 hours = $10. 00/hour • Overtime Rate = 1. 5 x Regular Rate = 1. 5 x $10. 00 = $15. 00/hour • Total Comp = ($450. 00) + ($15. 00 x 5 OT hours) = $450. 00 + $75 = $525. 00 24 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Salary (Option 2 – fluctuating work week) – Total Earnings + (0. 5 x Regular Rate) for all OT hours worked – Example • $600/week – no matter the number of hours worked • Worked 50 hours in work week • Regular Rate = $600. 00 ÷ 50 hours = $12. 00/hour • Overtime Rate = 0. 5 x Regular Rate = 0. 5 x $12. 00 = $6. 00/hour • Total Comp = $600. 00 + ($6. 00 x 10 hours) = $600. 00 + $60. 00 = $660. 00 25 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CALCULATING OVERTIME • Commissions – Total Earnings + (Overtime Rate x OT hours worked) – Example: • Employee is paid salary of $350/week + $200 in commission • Employee works 55 hours in the same work week • Regular Rate = Total Weekly Earnings ÷ Hours Worked = ($350. 00 + $200. 00) ÷ 55 hours = $10. 00/hour • Overtime Rate = 0. 5 x Regular Rate = 0. 5 x $10. 00 = $5. 00/hour • Total Comp = ($350. 00 + $200. 00) + ($5. 00 x 15 hours) = $550. 00 + $75. 00 = $625. 00 26 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CONSEQUENCES FOR MISCLASSIFICATION • Inaccurate Time Records For Non-Exempt Employees: – USDOL will ask employee to “estimate” his/her work hours per week (i. e. overtime) – USDOL will calculate OT based on employee’s “estimated” hours and demand payment – If employer cannot prove otherwise (with valid records), USDOL will find violation 27 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

CONSEQUENCES FOR MISCLASSIFICATION • Inaccurate Time Records For Exempt Employees: – Typical Situations: • Exempt employees required to clock in on the same system as nonexempt employees so company can monitor attendance • Exempt employees required to clock for purposes of calculating paid leaves • Exempt employees required to use time cards for purposes of calculating bonuses • Exempt employees required to clock in so company can bill customer – Result: Exempt employee is converted to nonexempt and unpaid overtime is now due 28 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

FINAL THOUGHTS • Carefully review all your positions against the statutory test • Properly classify your employees under FLSA • Get ready to implement changes effective 12/1/16 • Accurately calculate overtime • Keep accurate records in accordance with state and federal law 29 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020

ANY QUESTIONS? • If you have any follow up questions, email us at – aes@esandalaw. com – tgibo@esandalaw. com • For access to these materials, email – bdasilva@esandalaw. com • Please visit our website for more resources – www. esandalaw. com 30 Copyright 2016 ES&A, Inc. All Rights Reserved Confidential and Proprietary September 17, 2020