Understanding Fair Labor Standards Act: Final Rule Implications

1. Fair Labor Standards Act Final Rule

2. Major Provisions of the FLSA The Fair Labor Standards Act of 1938: • Introduced the 40-hour work week • Established a national minimum wage • Guaranteed overtime for certain jobs • Prohibited ‘oppressive child labor’ • Defined recordkeeping requirements

3. What is the Final Rule? On May 18, 2016, President Obama and the Secretary of Labor, Tom Perez, announced the Department of Labor’s final rule updating the overtime regulations of the FLSA. Specifically, the Final Rule: • Increases the standard salary level from $455/week to $913 ($47,476 annually for a full-year worker) • Increases the total annual compensation requirement for highly compensated employees (HCE) from $100,000 to $134,004 per year • Establishes a mechanism for automatically updating the salary and compensation levels every three years • Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level

4. Coverage

5. Who is, or is not, covered under FLSA? • Enterprise (business) coverage: If a business is covered, all employees of the business are covered under the FLSA and entitled to FLSA protections • Individual coverage: Even if the enterprise is not covered, individual employees may be covered and entitled to FLSA protections • Ministerial Exception: Ministry positions are exempt from coverage under the FLSA

6. Review the business of your local church Determining FLSA Coverage Is your church a covered enterprise? Review each job in your local church No Yes Job(s) covered under the FLSA Is this job a ministry position? Does the job require interstate commerce activities? No Yes Yes Review only covered jobs for correct FLSA classification No Job(s) NOT covered under the FLSA Are there 2 or more jobs requiring interstate commerce? No Church is a covered enterprise! Review all non-ministry jobs for correct FLSA classification Yes

7. Review the business of your local church Determining FLSA Coverage Is your church a covered enterprise? Review each job in your local church Job(s) covered under the FLSA Is this job a ministry position? Does the job require interstate commerce activities? No Yes Yes Review only covered jobs for correct FLSA classification No Job(s) NOT covered under the FLSA Are there 2 or more jobs requiring interstate commerce? No Church is a covered enterprise! Review all non-ministry jobs for correct FLSA classification Yes

8. Enterprise Coverage A business may operate a covered enterprise under the FLSA if: • It engages in ordinary commercial activities—performed for a business purpose—that result in sales made or business done of no less than $500,000 (the Annual Dollar Volume or “ADV” threshold) • It has two or more employees engaged in commerce or in the production of goods for commerce

9. Enterprise Coverage A business may also be a “named enterprise.” • Named enterprises include hospitals, organizations providing medical or nursing care for residents, schools, preschools, and government agencies (federal, state, and local). • Named enterprises are covered regardless of their Annual Dollar Volume. • Every employee of a named enterprise is entitled to minimum wage and overtime protections, unless the employee is exempt.

10. Review the business of your local church Determining FLSA Coverage Is your church a covered enterprise? Review each job in your local church No Yes Does the job require interstate commerce activities? Job(s) covered under the FLSA Is this job a ministry position? No Review only covered jobs for correct FLSA classification Job(s) NOT covered under the FLSA Are there 2 or more jobs requiring interstate commerce? No Church is a covered enterprise! Review all non-ministry jobs for correct FLSA classification Yes

11. Individual Coverage Employees of businesses who are not covered on an enterprise basis may still be covered individually if they are engaged in interstate commerce • The employee’s activities, not the activities of the business, determines coverage • Employees engaged in domestic service, including home care, are considered covered employees

12. Interstate Commerce Activities • Making out-of-state phone calls • Receiving/sending interstate mail or electronic communications • Ordering or receiving goods from an out-of-state supplier • Handling credit card transactions or performing the accounting or bookkeeping for such activities

13. Review the business of your local church Determining FLSA Coverage Is your church a covered enterprise? Review each job in your local church No Yes Is this job a ministry position? Job(s) covered under the FLSA Does the job require interstate commerce activities? Review only covered jobs for correct FLSA classification No Job(s) NOT covered under the FLSA Are there 2 or more jobs requiring interstate commerce? No Church is a covered enterprise! Review all non-ministry jobs for correct FLSA classification Yes

14. Ministerial Exception Though federal law does not specifically define ‘minister’ or the ‘ministerial exception’, recent case law has begun to determine a common definition • Applies only to those in an employer/employee relationship • Is not dependent upon ordination of the individual but upon the function of the job

15. Ministerial Exception Primary duties of the job that would most likely indicate inclusion in the ministerial exception: • Teaching or spreading the faith and/or church doctrine • Involvement in church governance/polity • Supervision of a religious order • Supervision or participation in religious ritual and worship

16. Review the business of your local church Determining FLSA Coverage Is your church a covered enterprise? Review each job in your local church No Yes Job(s) covered under the FLSA Is this job a ministry position? Does the job require interstate commerce activities? No Yes Yes Review only covered jobs for correct FLSA classification No Job(s) NOT covered under the FLSA Are there 2 or more jobs requiring interstate commerce? No Church is a covered enterprise! Review all non-ministry jobs for correct FLSA classification Yes

17. Overtime

18. Overtime Pay under FLSA Covered, non-exempt employees must receive one and one-half times the regular rate of pay for all hours worked over forty in a workweek

19. What is difference between ‘Exempt’ and ‘Non-Exempt’? Non-exempt – covered under the overtime provisions of the FLSA and are entitled to one and half times the regular rate of pay for hours over 40 in a workweek Exempt – not entitled to the overtime provisions under the FLSA and employers are not required to pay them extra wages for working more than 40 hours in a workweek

20. FLSA Overtime Exemptions

21. Overtime Exemptions The most common FLSA overtime exemptions -- often called the ‘white collar’ exemptions -- apply to: • Executive Employees • Administrative Employees • Professional Employees • Outside Sales Employees • Computer Employees

22. Three Tests for Exemption Salary Level Salary Basis Job Duties

23. Final Rule changes Salary Level CurrentEffective 12/1/2016 $455 $913 per week • For most employees, the minimum salary level required for exemption is $913 per week • Must be paid “free and clear” • The $913 per week may be paid in equivalent amounts for periods longer than one week • Biweekly: $1,826 • Semimonthly: $1,978.16 • Monthly: $3,956.33

24. Salary Basis Test • Regularly receives a predetermined amount of compensation each pay period • The compensation cannot be reduced because of variations in the quality or quantity of the work performed • Need not be paid for any workweek when no work is performed

25. Job Duties • Executive Employees • Administrative Employees • Professional Employees • Outside Sales Employees • Computer Employees

26. Basic Requirements for Claiming a White Collar Exemption

27. Executive Duties • Primary duty is management of the enterprise or of a customarily recognized department or subdivision • Customarily and regularly directs the work of two or more other full-time equivalent employees • Examples include: 1 full-time employee and 2 half-time employees, 4 half-time employees • Authority to hire or fire other employees or recommendations as to the hiring, firing, advancement, promotion or other change of status of other employees given particular weight

28. Administrative Duties • Primary duty is management of the enterprise or of a customarily recognized department or subdivision • Customarily and regularly directs the work of two or more other employees • Authority to hire or fire other employees or recommendations as to the hiring, firing, advancement, promotion or other change of status of other employees given particular weight Examples of Management/General Business Operations • Advertising • Marketing • Research • Safety and Health • Human Resources • Employee Benefits • Labor Relations • Public and Government Relations • Legal and Regulatory Compliance • Computer Network, Internet, and Database Administration • Tax • Finance • Accounting • Budgeting • Auditing • Insurance • Quality Control • Purchasing • Procurement

29. Professional Duties • Primary duty is the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction • Primary duty is the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor Occupations with recognized professional status:

30. Computer Related Occupations • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications • The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; • The design, documentation, testing, creation, or modification of computer programs related to machine operating systems • A combination of the above requiring the same level of skills

31. What are your options when a job is no longer ‘exempt’ under the new salary level guidelines? • Raise the salary of the individual to meet the new salary level guideline of $913/week ($47,476 annually) • Continue to pay the current salary plus time and half for all hours worked over 40 in a workweek • Reorganize workloads, adjust schedules or spread work hours • Adjust wages such that regular hours and anticipated overtime hours will equal current salary

32. Common Errors to Avoid

33. Common Errors to Avoid • Assuming that all employees paid a salary are not due overtime • Improperly applying an exemption • Failing to pay for all hours an employee is “suffered or permitted” to work • Limiting the number of hours employees are allowed to record • Failing to add all hours worked in separate establishments for the same employer when calculating overtime due • Making improper deductions from wages that cut into the required minimum wage or overtime. Examples: shortages, drive-offs, damage, tools, and uniforms

34. Enforcement • FLSA enforcement is carried out by Wage and Hour staff throughout the U.S • Where violations are found, Wage and Hour advises employers of the steps needed to correct violations, secures agreement to comply in the future and supervises voluntary payment of back wages as applicable • A 2-year statute of limitations generally applies to the recovery of back pay. In the case of a willful violation, a 3-year statute of limitations may apply

35. For additional information and a listing of resources, please visit the Human Resources page on theIowa Conference websitehttp://www.iaumc.org/hr Disclaimer - This presentation is intended as general information only and does not carry the force of legal opinion. QUESTIONS?