Overview of the new rules and steps you need to take to comply. It applys to both for profit organizations and not for profits.

1. The New DOL
Overtime
Regulations
Who is covered and how to plan for
the new rules

2. Background on the rules
• Fair Labor Standards Act passed during the Great Depression
• Defines “exempt” (not covered) and “non-exempt” (covered) employees
• 3 criteria for assessing “exempt” vs “non-exempt” employees
• How are they paid – hourly v salary
• How much are they paid
• What are their job duties

3. What enterprises are covered by the new
rules?
• If state law uses federal rules – is true for Illinois
• If have more than $500,000 in commercial activity – applies to a business
and commercial activities (not fundraising) for nonprofit
• If have one or more employees who are regularly engaged in interstate
commerce
• Includes interstate phone calls
• Ordering supplies from out of state businesses
• If state law is different, use the stricter standard

4. Present Rules – Until December 1, 2016
• Non-exempt employees – is covered by the Fair Labor Standards Act
• Weekly wage - $455 per week maximum for most non-exempt employees
• Was last changed in 2004
• Note that the salary test is per week.
• Duties do not involve executive decision making authority

5. New Rules – starting December 1, 2016
• Rules on duties did not change
• Minimum weekly wage for “non-exempt” employees was raised to $913 per
week.
• Equals $47,476 annually.
• Includes bonuses and commissions paid quarterly or less often.
• Consider adjusting bonuses so paid quarterly instead of annually
• Can’t count an annual bonus

6. How the Rules Work
• You must pay at least 90% of the weekly wage, or $821.70.
• If total salary is less than $11,869 in the quarter, you must make up the
difference in the first pay period o f the next quarter.
• Is based on the 40th percentile of the full time non-hourly paid employees in
the lowest paid census region (South). But defined the south to include
Washington DC, Virginia and Maryland.
• What if employee leaves in the middle of the quarter?

7. A Comparison of the Changes
2004 2016
Duties test
Professional,
administrative are
exempt
No change
Salary basis Salary-exempt No change
Salary amount $23,660 $47,476

8. What employees are covered (non-exempt)
• Those who are paid hourly
• Those who work in certain industries
• Those who are paid less than a certain salary.
• Those whose jobs do not involve discretionary or executive decision making
or professional training
• It is possible for salaried employees to be paid overtime.

9. What is included in addition to salary?
• Nondiscretionary bonuses
• Incentive pay
• Commissions
• Must be paid at least quarterly
• Can cover up to 10% of the required amount

10. Which employees are exempt?
• White collar exemption – middle and upper level managers
• Professionals – lawyers, doctors, CPAs
• Professionals and executives must be paid a salary
• There was no change in this from previous rules

11. Highly Compensated Employees
• Currently at $100,000 annual compensation
• Goes to $134,004 starting December 1.
• Is set at the 90th percentile of full-time non-hourly paid employees
nationwide

12. Future Automatic Increases
• Salary levels will increase automatically every 3 years starting January 1,
2020.
• DOL will provide notice of the new levels at least 150 days before the
January 1 effective date.
• This means that we will get notice approximately July 1 of the preceding
year
• Don’t count on levels ever going down

13. How Do You Prepare for the Changes?
• START PLANNING NOW! IT WILL TAKE SEVERAL WEEKS OR MONTHS TO
WORK THROUGH THESE RECOMMENDATIONS.
• Rules will not go away. They become effective before the next
administration and Congress take office
• Somebody is likely to file a lawsuit against the new rules, but it will take a
long time to wind through the courts.
• Lawsuits under the FLSA are increasing. These lawsuits start with
disgruntled employees.

14. How will the rules affect your employees?
• Look at independent contractors to make sure they aren’t employees.
• Many organizations come down on the wrong side of the issue
• Identify employees who need to be reclassified (exempt or non-exempt)
• These include jobs below the new salary threshold
• We recommend that you review duties also. Don’t rely on job titles.
• You have a chance to correct misclassification with reduced risk of
litigation.

15. How much will overtime cost you?
• Collect salary and incentive pay information
• Calculate the cost of increasing the salary to $47,476
• Should you reduce incentive pay to offset the salary increase?
• What is the cost of overtime?
• How many hours are currently exempt employees working?
• Formula: (weekly salary / 40) x 1.5 x expected overtime hours

16. A Legal Cost Neutral Solution
• Weekly salary/(40+(OT hours * 1.5))
• With a good estimate of expected weekly work hours (average), applying
this formula will result in same weekly and annual compensation

17. Sample Calculations
Required weekly salary
Present weekly
salary Standard hours Hourly rate
Overtime
factor
Expected
overtime hours
Average
weekly cost
Cost of raising the
salary $913 $800 $113 $18.26
Cost of overtime $800 40 $20 1.5 10 $300 $22.00
Cost neutral
solution $913 $800 40 $23 1.5 10 $166 $19.32

18. How To Review Jobs
• Do it with your organization’s attorney. If plaintiff’s lawyer comes calling, it
will be privileged information.
• Review job descriptions, training materials and performance expectations
• Ask for a legal analysis if job duties qualify for an exemption

19. How To Pay Reclassified Employees?
• Pay on a salary or convert them to hourly pay?
• Adjust the salary level downward or adopt an hourly rate that will minimize
the additional costs?
• How do you calculate overtime for salaried employees?
• Divide salary by 40?
• Divide salary by actual hours worked?
• Fluctuating workweek?
• Do we still provide incentive pay?
• Should we change any benefits?

20. Some practical considerations
• Comp time – illegal to give covered employees comp time
• How will employees feel about punching a clock – you need to discuss how
your employees may feel about punching a time clock.
• Employees may consider it a demotion.
• Don’t rely on a job title to decide. Look at their actual responsibilities
• Employees cannot “volunteer” the additional hours. Is illegal

21. Do we change any Policies and
Procedures?
• Policies
• Off the clock work
• Meal and rest breaks
• Travel time
• Bringing your own devices?
• Procedures
• Timekeeping
• Payroll changes
• Controlling overtime

22. Communication and Training
• Need to communicate with management as well as the employees
• The important decisions
• Who will communicate?
• What will you communicate?
• How will you communicate?
• When will you communicate?
• Prepare a FAQ sheet to handout.
• Train employees and their managers on the new policies and procedures

23. Analyze how the rules will affect you
• How will it affect your budget when the new rules take effect?
• Where will the money come from?
• Program cuts
• Reduced labor force
• Additional sales – not easy in present economy
• Additional fundraising for nonprofits – also not easy in present economy

24. Contact Information
For more information contact:
James C Provenza, JD, CPA
James C Provenza & Associates, PC
1701 E Lake Avenue, #407
Glenview, IL 60025
Phone: 847-729-3939
Cell: 815-298-0664
E-mail: jprovenza@provenzalaw.com