The Fair Labor Standards Act: An Overview and Update

1. The Fair Labor Standards Act: An Overview and Update Presented by Allison Schafer, Legal Counsel/Director of Policy Kathy Boyd, Senior Staff Attorney Materials Prepared with Christine Scheef, Staff Attorney North Carolina School Boards Association October 2016

2. Disclaimer The information in this presentation is informational only and does not constitute legal advice. No attorney-client relationship is created or intended through participation in this seminar or through receipt or review of presentation materials.  For advice on specific matters, please consult your board attorney or other legal counsel.

3. Scope of FLSA • Sets minimum wage. • Requires overtime pay for certain employees. • Requires equal pay for women. • Sets child labor standards.

4. Minimum Wage • Current minimum wage is $7.25 per hour (both federal and N.C.). • The FLSA and N.C. labor laws both allow certain categories of employees to be paid at 85 percent of the minimum wage. This includes full-time students, learners, apprentices and disabled workers.

5. Who is covered by the FLSA? • Employees • Not all employees are entitled to overtime • Not all employees are entitled to minimum wage

6. Who is not covered by the FLSA? Elected officials (including school board members) Volunteers Independent contractors Trainees (e.g., student teachers)

7. Volunteers

8. Must be “bona fide” • Individuals who perform hours of service for a public agency for civic, charitable, humanitarian reasons, without promise, expectation or receipt of compensation for services rendered (other than expenses, reasonable benefits, or nominal fee) • Not employed by the school system to perform the same type of services as those for which the employee proposes to volunteer

9. Purdham v. Fairfax Co. School Board • 4th Circuit case in 2011 • Plaintiff worked 300-450 hours per year as a high school golf coach • Regular overtime-eligible job was “safety and security assistant,” a position not conditioned on his coaching assignment • Paid a stipend of $2,114 for coaching, plus reimbursement for mileage

10. I S S U E • Was plaintiff an employee entitled to overtime wages for his services as the golf coach, or was he a volunteer?

11. Mr. Purdham claimed: • Entitled to overtime pay, because he is an employee • He never considered himself a volunteer, therefore he is an employee • Contract and state law dictate that he is an employee • Too late for Board to claim he is not an employee • Performs the same types of duties in his regular job as in coaching job

12. Court concluded: • Mr. Purdham is a volunteer • Was motivated to coach by love of golf and dedication to student athletes • Coaching v. another part-time job was a “lifestyle choice” • “Culture of high school athletics for coaches to consider themselves volunteers” • Board submitted 18 affidavits from other coaches who considered themselves volunteers

13. Court concluded (cont’d): • Contract and state law are not relevant—issue is controlled by FLSA • Although the board previously paid overtime, board was just trying to comply with FLSA in uncertain environment • Duties in regular job and coaching job are not same • Paid a “nominal fee” • Stipend is fixed, rather than based on time, effort, or productivity • Stipend is less than minimum wage and salary

14. Independent Contractors Factors to weigh in determining whether someone is an independent contractor: • Degree of control exerted over the worker; • Worker’s opportunity for profit or loss; • Worker’s investment in his business; • Permanence of the working relationship; and • Degree of skill required to perform the work.

15. Employees Exempt v. Nonexempt

16. There is a presumption that all employees are covered by the overtime provisions of the FLSA, unless the employer can prove otherwise. • Employees who are protected by the overtime provisions are “nonexempt” employees. • “Exempt” employees—high-level or professional employees who fit within one of the exempt categories—are not entitled to receive overtime.

17. Nonexempt Employees • Every employee who does not fall within one of the exempt categories is entitled to the minimum wage and overtime provisions of the FLSA. • For each hour worked in excess of 40 during a week, the employee must be paid time and a half or provided compensatory time at a rate of 1.5 hours for each hour worked.

18. Exempt Employees C A T E G O R I E S • Executive • Administrative • Professional • Highly compensated

19. “White Collar Exemptions” • Salary Basis Test • Employee must be paid a predetermined and fixed salary that is not subject to deduction because of variations in the quantity or quality of work • Salary Level Test • Employee must earn a certain minimum salary per week

20. “White Collar Exemptions” • Primary Duty Test • The employee’s “primary duty” must entail certain specific types of tasks • Job title does not matter An employee must meet all three tests – salary basis, salary level, and primary duty – to qualify for the exemption.

21. Primary Duty Test

22. Executive Employees • Primary duty must include managing the enterprise or a recognized subdivision • Must customarily and regularly direct the work of two or more other employees • Must have the authority to hire, fire, or promote or have their recommendations be given special weight

23. Administrative Employees • Primary duty: • Must be performing office or non-manual work directly relatedto management or general business operations and • Must include the exercise of discretion and independent judgment with respect to significant matters.

24. Administrative Employees In addition to that general exemption, this category also specifically includes employees: • who meet the salary basis and (special) salary level test, and • whose primary duty is performing administrative functions directly related to academic instruction or training. The exercise of discretion and independent judgment with respect to matters of significance is considered inherent in the primary duty test.

25. Significance of the Academic Administrative Exemption • These employees are not required to meet the salary level test. • Instead, they must be paid an amount “at least equal to the entrance salary for teachers” in the school system.

26. Professional Employees • Primary duty is either: • Work requiring advanced knowledge in a field of science or learning (customarily acquired through advanced schooling) and predominately intellectual in nature; or • Work requiring invention, imagination or talent in a recognized field of artistic endeavor; or • Teaching, tutoring, instructing, or lecturing and employed by an educational establishment. Salary and salary basis requirements do not apply to teaching professionals.

27. Highly Compensated Employees • Duties must include one or more of the exempt responsibilities of an executive, administrative, or professional employee; and • Primary duty must include office or non-manual work.

28. Salary Level Test

29. Current Salary Level Thresholds • Executive, administrative, and professional employees must be compensated on a salary basis at a rate of at least $455 per week ($23,660 per year). • Highly compensated employees must have total annual compensation of $100,000 or more, which must include at least $455/week paid on a salary basis. • Employees who meet the academic administrative exemption must be paid either $455 per week OR the entry level salary for a teacher in the school system. • These salary thresholds are in effect until December 1, 2016.

30. Upcoming Changes to the Regulations

31. Changes to the Overtime Regulations • The US Department of Labor published a final rule updating the overtime regulations on May 23, 2016. • The new rule goes into effect on December 1, 2016.

32. The Final Rule • Raises the salary threshold for the white collar exemptions. • “Simplifies” the identification of non-exempt employees. • Requires automatic updates to the salary threshold every three years to prevent an outdated minimum. There are no changes to the primary duty test.

33. Raising the Salary Threshold • The new rule sets the new salary threshold at $913 per week ($47,476 annually). According to DOL, this is the 40th percentile of earnings for full-time salaried workers in the lowest wage Census region (the South). • Teachers are exempt from the salary level requirement. However, to put this number in perspective, consider that the state salary scale pays teachers with a bachelors degree and 15-19 years experience only $45,250.

34. Raising the Salary Threshold • DOL also set the minimum threshold for highly compensated employees at the 90th percent of earnings for full-time salaried workers, which is $134,004 annually. • The new salary thresholds take effect December 1, 2016. • The thresholds apply equally to part-time employees (no pro-rating).

35. Raising the Salary Threshold • The new regulation includes a mechanism to automatically update the threshold every three years, using the 40th percentile of wages. • The first automatic update will be January 1, 2020. • Based on historic wage growth in the South, the threshold on January 1, 2020, likely will be approximately $984/week or $51,168/year.

36. Simplifying Identification of Non-Exempt Employees • “Simplification” is accomplished primarily through the increase in the salary threshold because it eliminates the need to apply the duties test to employees who do not meet the new salary threshold.

37. It’s Not Quite Over Yet… • In March, a “resolution of disapproval,” was introduced in Congress to block implementation of the rule. • In September, two separate legal challenges to the law were filed in a Texas federal court.

38. How will the changes affect school districts? • Primarily by increasing the number of employees classified as non-exempt and therefore entitled to overtime. • But remember • Bona fide teachers are not affected • Some employees who are below the new salary threshold may qualify for the academic administrative exemption, which in most cases, has a lower salary threshold (i.e., a beginning teacher’s salary)

39. Academic Administrative Exemption • The exemption for administrative employees specifically includes employees whose primary duty is “performing administrative functions directly related to academic instruction” • This means “work related to the academic operations and functions in a school rather than to administration along the lines of general business operations.”

40. Who performs such functions? • The superintendent; • “Assistants” responsible for such areas as: • administration of curriculum; • instructing, measuring and testing students; • academic and grading standards; • and other aspects of the teaching program; • Principals and assistant principals;

41. Who performs such functions? • Counselors who perform work such as administering school testing programs and assisting students with academic problems; and • Other employees with similar responsibilities.

42. Who does not? The regulations explicitly state that the following positions do not involve the performance of academic administrative functions: • Those in positions relating to building management and maintenance; • Those in positions relating to the health of the students; • Academic staff such as social workers, psychologists, lunch room managers or dietitians.

43. Who does not? • However, although such work is not considered academic administration, such employees may qualify for the administrative exemption or another white collar exemption, as long as they meet the salary basis, salary level, and duties tests. • Districts will need to look closely at these positions.

44. Do You Have Employees Who Must Be Reclassified? • Are your employees properly classified as “exempt” currently? Is the basis defensible? • Do job descriptions accurately convey the core functions and responsibilities of each role, particularly for positions currently classified as “exempt”? • Which positions/employees will no longer qualify as “exempt” because they don’t meet the salary threshold? • Could any of those positions/employees qualify for the teacher or academic administrative exemption?

45. Employees Currently Properly Classified as “Exempt” Yes Is employee’s primary duty teaching? No Yes Is employee paid ≥ $913 per week? No Is employee’s primary duty performing an academic administrative function? No Yes No Yes Is employee paid ≥ entry level teacher salary? Non-Exempt Still Exempt

46. Options For currently exempt employees who will fall below the new salary threshold: • Raise employee’s pay to maintain exempt status, or convert role to nonexempt ? • If position must be converted from exempt to nonexempt, does the employee currently work more than 40 hours/week? If so, will you: • allow the employee to continue to work those hours (and pay overtime or give compensatory time)? • reduce the employee’s hours and hire additional employees to cover the workload? • eliminate duties to lessen the workload?

47. The Straddling Dilemma • Possible responses when the salary range for a position straddles the salary threshold: • Increase salary for employees who are below the threshold? • Will you also increase salary for those above the threshold to maintain the difference? • Move responsibilities to avoid overtime? • Allow some employees in the position to earn overtime, but not others? • Make all employees in the position non-exempt?

48. Other Preparations • Review employee handbooks, policies, regulations • Review and adjust job duties and/or workloads of employees who formerly were exempt but who now fall below the salary threshold • Implement controls for overtime and compensatory time

49. Other Preparations • Prepare for the following potential impacts: • Increased payroll costs • Increased administrative costs • Training needs for newly reclassified employees

50. Refresher: Overtime and Compensatory Time