FLSA Special Update

Implementing the Revised Fair Labor Standard Act Rules

On May 18, the Department of Labor (DOL) released the final regulations updating the salary threshold for exemption status. The new rules takes effect December 1, 2016. HR Services has identified the basic steps that districts can take to prepare for implementing the changes for the 2016–17 school year.

HR Services’ suggested process for determining the weekly salary has evolved following review of the final regulations and further clarifications from the DOL. The process outline below is different from what was included in previous articles on the proposed regulations. Districts should carefully review the information below to ensure compliance with the FLSA regulations.

Exemption Criteria
To be considered exempt from overtime an employee must meet all of the test criteria of one of the exemption tests. The tests include executive, administrative, professional, and computer employee. Each test includes the following criteria:
  • Salary basis: employees must be paid a predetermined and fixed salary that is not subject to reduction because of variations in quality or quantity of work performed.
  • Salary level: employee pay must meet a minimum specified amount.
  • Primary duties test: the employee’s job duties must primarily involve executive, administrative, or professional duties as defined in FLSA regulations.
Key Provisions of the Final FLSA Rule
The revised rule only changed the second criteria—the salary level. The primary changes to the salary level are listed below:
  • The salary threshold increased from $455 to $913 per week, or $47,476 annually for a full-year worker, based on the 40th percentile of earnings of full-time salaried workers in the South Census Region.
  • The total annual compensation requirement for highly compensated employees (HCE) increased to $134,004 (Note: this rarely, if ever, is applied to school district employees).
  • There will be an automatic update to the salary levels every three years.
Employers must comply with the revised rules beginning December 1, 2016.

What does this mean for school districts?

In general, there will be a small percentage of the workforce that will be impacted by the new regulations. To determine the impact, districts can take the following steps:

1)     Eliminate from review those jobs not subject to any salary threshold. These jobs include:
  • Jobs that are currently nonexempt, such as clerical staff, instructional aides, bus drivers, custodians, food service workers, and maintenance workers
  • Teachers, including all subject areas and grade level classroom teachers
  • Other instructional personnel, such as teacher/coaches, band directors, and driver’s education instructors
  • Substitute Teachers
2)     Review all other exempt positions and determine which employees may be considered academic administrative employees as defined in the FLSA regulations. Identification of these employees are important because there is an alternative salary threshold against which they may be measured. These employees must perform administrative functions directly related to academic operations and functions. Examples specified in the FLSA regulations include:
  • Superintendent
  • Principal and vice principals responsible for the operation of an elementary or secondary school
  • Positions responsible for administration of such matters as curriculum, quality and methods of instructing, measuring and testing the learning potential of students, establishing and maintaining academic and grading standards, and other aspects of the teaching program.
  • Academic counselors who perform work such as administering school testing programs, assisting student with academic problems, and advising students concerning degree requirements
Jobs that would not meet the requirements for administrators in an educational establishment include non-instructional administrators (e.g., transportation director), jobs that are also in other sectors, those relating to building management and maintenance, jobs relating to the health of the students (e.g., registered nurses, speech pathologists, occupational therapists, and physical therapists, and staff such as social workers, psychologists, lunch room managers or dietitians.

Although such work is not considered academic administration, employees in these jobs may qualify for another exemption, such as general (non-educational) administrative or executive.

3)     Measure the weekly pay of employees not excluded in step 1.
  • For employees identified in step 2 as performing academic administrative functions, compare the weekly rate of the employee against the weekly rate of the starting teacher salary in your district. Starting teacher means the hiring rate for a teacher with no prior experience—sometimes called a 0-year teacher. If your academic administrators are paid at least as much as a starting teacher in your district, they meet the alternative salary threshold.
  • For all other exempt employees, compare the weekly rate of the employee against $913.
There are two current approaches for calculating weekly salary—one that’s more conservative and one that’s less conservative. The more conservative approach can help protect districts from underestimating time worked by employees, so HR Services recommends using this approach more liberally than the less conservative approach.

More conservative approach: Count the number of total weeks between the beginning and end of the employee’s duty calendar, regardless whether work was performed in a week. Divide the annual salary[1] by the number of weeks calculated.
 
Librarian – 187 days
$40,000 annual salary / 44 weeks = $909 per week
Does not meet threshold

 
The DOL has clarified that school districts can exclude from the calculation any weeks in which no work occurs. However, in many districts exempt staff may perform work during a week in which they’re not schedule to work. This conservative calculation would be used for employees who might possible possibly work in a week not scheduled for work. Common examples include a payroll supervisor who works over winter break to oversee payroll processing, or a maintenance director who answers an alarm call during spring break or is called into work because of frozen pipes during the winter break. Remember, any week in which any work occurs—even checking e-mail or answering a phone call—is a work week, according to the FLSA regulations.

Less conservative approach: This approach assumes that absolutely no work of any kind will occur during weeks not counted in the calculation. Count the number of weeks between the beginning and end of the employee’s duty calendar in which the employee performed any work. Weeks where work is not performed, like spring break, thanksgiving, and winter break are not included. Divide the annual salary1 by the number of weeks calculated.
 
Librarian – 187 days
$40,000 annual salary / 40 weeks = $1,000 per week
Meets threshold

 
This method should be used only for those exempt employees who definitely would not perform any work during a week not scheduled for work.

Nondiscretionary Bonuses
The final rules will allow nondiscretionary bonuses and incentive payments to count for up to 10 percent of pay to meet the salary threshold, but the payments must be paid at least quarterly. Examples of a nondiscretionary bonus in a school district setting are longevity or retention bonuses. Districts that pay a retention or longevity bonus can count them toward up to 10 percent of the weekly pay calculation, provided the district pays the bonus at least quarterly.
 
Part-Time Professionals
The salary comparison for part-time professional exempt employees cannot be prorated to account for their part-time schedules. They must meet the salary threshold regardless how many days they work per week. For example, a part-time occupational therapist who works two days per week must earn $913 per week to remain exempt.

Education Service Centers
Education Service Centers (ESCs) do not appear to meet the definition of educational establishment, per the FLSA regulations. This means ESC employees—even those performing academic functions—may not be able to take advantage of the alternative salary threshold available to academic administrators in an educational establishment. ESCs interested in pursuing consideration as an educational establishment should consult their local counsel.

Next Steps
There are two basic ways to address employees whose pay doesn’t meet the salary thresholds. First, raise the salary to the prescribed threshold. For professionals who meet the duties test to be classified as an administrator in an educational establishment the amount must be either $913 per week or the weekly rate of the starting teacher salary in your district.

The salary of all other exempt staff would be at least $913 per week. Issues to consider when raising salaries include:
  • Resulting pay compression
  • Cost to the district
  • Timing of increase
The second option is to treat employees as nonexempt. This means identified employees:
  • Are subject to FLSA timekeeping requirements and must maintain weekly time sheets that accurately reflect hours worked
  • Must be paid at least minimum wage when their salary is translated to an hourly rate
  • Must be paid for all hours worked
  • Must receive an overtime premium for any hours worked over 40 in a given workweek
Additional Guidance

On June 23, 2016, HR Services will conduct the second webinar in our series for implementing the FLSA final regulations. This webinar, Next Steps—Options to Ensure Compliance with the New FLSA Rules and How to Communicate with Employees about the FLSA Changes, will help guide districts in determining how to handle employees who fall below the new salary threshold and provide tips for communicating changes with employees in a clear and effective way. Registration is free to HR Services members. A recording of the webinar will be available following the event.

A recordings of our first webinar, Three Simple Steps to Identify Employees Impacted by the New FLSA Rules, is available to HR Services members on the HR Services Webinar Training page.



[1] Annual salary includes any additional pay for employees, such as master’s degree stipends, extra-duty stipends, or other stipends paid for work performed.