FLSA Background & FAQ
Background on the Fair Labor Standards Act and Upcoming Changes
The Fair Labor Standards Act (FLSA) contains several provisions in order to protect certain workers. New changes in the federal law become effective on December 1, 2016.
These proposed changes may have a considerable impact on the number of employees who can be considered Exempt/Salary, which could mean substantial changes, not to mention the administrative and cultural challenges. For example, some employees who are now considered Exempt from the FLSA may in fact be reclassified as Non‐Exempt and vice versa.
In light of the changes, the Department of Labor (DOL) has provided many guidelines for employers to determine how to comply with the upcoming changes to the FLSA.
For a position to be considered Exempt (typically considered Salaried) from FLSA, there are three factors which must be considered:
- The person must be paid on a salary basis; and
- The person must meet the minimum salary of $47,476; and
- The essential functions of the role must pass one of the duties tests (i.e. Executive, Administrative, Professional or Creative Professional, Computer, Outside Sales, or Highly Compensated)
Below are several “Frequently Asked Questions” (FAQs), which are provided to share more information on the new rules as well as EKU’s approach in determining the best next steps. We will update this document as more questions arise in order to share appropriate information with the University community.
WHAT IS THE FAIR LABOR STANDARDS ACT (FLSA)?
The Fair Labor Standards Act (FLSA) is the federal wage and hour law administered by the U.S. Department of Labor (DOL). The purpose of the FLSA is to establish minimum wage, overtime pay, recordkeeping, and youth employment standards affecting most full‐time and part‐time workers. Employees are either “exempt” or “non‐exempt” from the FLSA regulations. This designation indicates eligibility for overtime pay when overtime is worked. The FLSA requires employers to pay their employees overtime (one and one‐half times the employee’s regular rate of pay) for all hours worked over 40 in a workweek unless they meet a minimum pay requirement and their job duties meet specific criteria to be “exempt” from overtime.
WHAT IS THE DIFFERENCE BETWEEN AN “EXEMPT” AND A “NON‐EXEMPT” EMPLOYEE?
The difference is that an “exempt” employee is paid on a salary basis (a predetermined amount of money for work performed, regardless of the hours actually worked) and is not required to track time worked. At EKU, these employees are paid semi‐monthly. A “non‐exempt” employee is paid based on actual hours worked, and is required to track all time worked and be paid overtime for time worked in excess of 40 hours in a workweek. At EKU, these employees are paid bi‐weekly.
WHAT IS CHANGING?
The DOL has announced that it will revise the FLSA, raising the salary threshold required to qualify for exemption from overtime to $913 weekly, $47,476 annually (currently the amount is $455 weekly, $23,660 annually). This is a significant change that will impact, in some way, a number of EKU employees, transitioning them from exempt status to non‐exempt status (i.e., paid bi‐weekly and overtime-eligible). The new regulation also establishes a mechanism for automatically updating the salary and compensation levels every three years, beginning January 1, 2020.
WHY IS THIS CHANGE OCCURRING?
President Obama instructed US Secretary of Labor Thomas Perez to revise the regulations regarding employee overtime pay under the FLSA. The intent is to expand the eligibility for more employees to receive overtime pay. The President wanted the Department of Labor (DOL) to revise current regulations because those “regarding exemptions from the Act’s overtime requirement, particularly for executive, administrative and professional employees (often referred to as “white collar”) have not kept up with our modern economy.” In 2004, President George W. Bush last raised the salary level to $455 weekly, $23,660 annually, where it has remained until the latest provisions.
DOES THIS APPLY TO DIFFERENT INDUSTRIES?
The new regulations that have been provided are to be applied across the board regardless of geography, size of the organization, or the industry that we are in. As the effective date of December 1, 2016, approaches, we hope to see more guidance and insight on innovative ways to apply these changes. In the meantime, we are working to put the necessary details in order to allow us to put best practices in place for our departments.
WHO IS AFFECTED BY THIS CHANGE at EKU?
We anticipate that a number of EKU employees may change from exempt to non‐exempt. Human Resources and Senior Leadership has compiled a list of all jobs that could be impacted. From this list we have met with the leadership from across the campus to assist in informing them on the current changes to the FLSA. Your units are currently evaluating the job description to ensure that it accurately represents the position’s essential functions and responsibilities. Given technology, innovation, and legislative matters, our work may change over time. This will serve as an opportunity to update as appropriate. We have advised senior leadership, directors and many unit supervisors to collaborate with their teams to ensure that we have accurately captured their work in the job description. Supervisors may also be asking some employees to complete a time study so we can get a precise understanding of the time it takes to complete their essential duties. This will be critical in making decisions regarding each position’s classification. We expect the initial list to be finalized sometime in August. Once the jobs are identified, the EKU will notify supervisors and advise employees on next steps.
HOW AND WHEN WILL IMPACTED EMPLOYEES BE NOTIFIED?
If your job is changing from exempt to non‐exempt, you will be notified by your department and you will also receive notification by HR. HR will be working to communicate with each impacted employee to explain the changes and next steps. As we continue to work through due diligence, you will be notified prior to the December 1 effective date.
WHAT DOES THIS MEAN FOR EMPLOYEES WHO WILL EXPERIENCE A CHANGE?
Employees moving from exempt to non‐exempt:
• Must report all hours worked
• Must be paid for all hours worked and receive overtime for time worked in excess of 40 hours in a workweek
• Will be paid bi‐weekly rather than semi‐monthly. Bi-weekly is paid over 26 pay periods, semi-monthly is paid over 24 pay periods therefore while the annual pay amount for employees will stay the same the per pay period amount with be slightly lower. Also understand that our bi-weekly payroll is paid on a two-week delay, but our semi-monthly is paid at the time work is completed. With that in mind HR, Payroll and Senior Leadership are working to ensure the transition from semi-monthly to bi-weekly is as smooth and transparent as possible. Look for more detailed information soon.
It is important to note that this change in FLSA status is in no way a downgrade of any position, of a professional status, or of the importance of your work. EKU is required to abide by federal law and ensure that employees are paid according to the new FLSA regulations. This change provides regulations that ensure employees are being paid fairly and paid for all hours worked. EKU will offer resources to help manage the change. More details, including dates, times and locations, will be announced soon.
HOW CAN WE BEST REPRESENT THE WORK CURRENTLY BEING PERFORMED?
For any positions to be reviewed for FLSA classification, supervisors and employees will be asked to review the job responsibilities to ensure the position description reflects an accurate account of the current work being performed.
DO YOU ANTICIPATE THAT WE MAY NEED TO REDESIGN THE JOB DESCRIPTIONS TO REFLECT ESSENTIAL TASKS AND REMOVE ADDITIONAL DUTIES?
After the review of the job description, your supervisor may feel that the position has changed or requires changes and will work with HR to complete a reclassification.
WHAT IS THE DUTIES TEST?
The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one‐half the regular rate of pay for all hours worked over 40 hours in a workweek. However, the FLSA provides an exemption from overtime pay for employees employed as bona fide teacher, executive, administrative, professional, outside sales employees, and certain computer employees. These exemptions are called the “duties test.” To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $913 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the DOL’s regulations.
WILL ALL POSITIONS REQUIRE A TIME STUDY?
No, but supervisors may identify certain positions that will require a time study. The review will not be limited to those under the new salary threshold. Many positions will be evaluated during this process. We will be in close contact regarding each supervisor’s responsibility. The purpose of the time study is to accurately create a snapshot of your position and the time required to complete it. The expectation is that there may be flexibility within a workday, and we hope to see that accounted for accordingly.
WHAT EFFECT WILL THIS CHANGE HAVE ON AN EMPLOYEE’S RETIRMENT SYSTEM?
Those employees who change from exempt to non-exempt will see no changes in any of their retirement options or any EKU-provided benefits. If it is determined that a position requires reclassification due to an outdated job description, there is potential for the employee to make a retirement system change. In most cases, changes would not be necessary.