Transcript Webinar Materials - California Employer Advisor

Advanced Exemption Audits: Evaluate
Your Overtime Classifications Now To
Avoid Costly Trouble Later
Friday, November 19, 2010
Presented by the Employer Resource Institute
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About Our Speaker
Mary Topliff, Esq., founded the Law Offices of Mary L. Topliff in
San Francisco in 1997, after practicing civil and employment
litigation for nine years.
The firm specializes in employment law counseling, training and
compliance, focusing on practical solutions to avoid costly legal
issues. She has advised many organizations regarding a wide
variety of fitness for duty and disability accommodation issues,
provided training to managers and human resources professionals
and has crafted customized policies and procedures to comply
with legal requirements.
She is a published author and frequent speaker on legal issues
impacting the workplace.
© 2010 Employer Resource Institute. All Rights Reserved
Advanced Overtime Exemption Audit
Strategies
ERI Webinar, 11/19/10
Mary L. Topliff, Esq.
Agenda
7
•
Overview of Key Legal Requirements
•
Risks of Misclassification
•
Meal/Rest Period Issues
•
Audit Process --Analysis of Selected Jobs
•
Strategies for Communication & Implementation
•
What you can do now!
Overview of Key Legal Requirements
•
8
Overtime Exemption Laws
• Federal Fair Labor Standards Act (FLSA)
• Law favors payment by the hour
• Presumption that employees are nonexempt
• Burden on employer to prove overtime exempt
• Employees cannot “agree” to be overtime exempt
• California Law
• Labor Code and Wage Orders
• Apply CA law to employees working in CA
• Open legal issue regarding employees working occasionally in
CA
Overview of Key Legal Requirements
•
Overtime Exemption Classifications
• Administrative
• Executive (Manager)
• Professional (Licensed/Learned/Computer/Creative)
• Outside Sales
•
Two Components
•
Paid on Salary Basis
• Exceptions: Computer professional, outside sales
•
9
Employee’s Regular Duties Qualify for Specific Exemption
Overview of Key Legal Requirements
10
•
Salary alone is not determinative
•
Salary subject to rules
• Fixed base weekly salary not subject to reduction due to
quantity/quality of work
• Deductions from weekly salary in full-day increments
• Okay for employee-requested absences
• Not okay for employer-required absences
• Deductions from weekly salary in partial day increments
• Never okay
• Deductions from Vacation/Sick/PTO banks
• Not the same as deductions from salary
Overview of Key Legal Requirements
•
•
11
California salary requirement: No less than two times State minimum
wage based on 2,080 hours worked in year (i.e., full-time employment)
•
Currently: $33,280/year
•
Salary not prorated for part-time employees
Tips on inadvertent deductions
• Have policy for employees to raise issues
• Address and fix quickly (specific employee issue + look at broader
implications/changes)
• Employee acknowledgment that issue resolved
Overview of Key Legal Requirements
•
“Duties” Test & 50% Rule
•
More than 50% of employee’s actual work involves exempt duties during
work week + employer’s realistic expectations and realistic requirements
of job
•
•
“Discretion and independent judgment” (DIJ) required for California
Administrative, Professional, Executive Exemptions
•
12
FLSA focuses on primary duties vs. quantitative analysis
Most commonly misapplied element
Overview of Key Legal Requirements
•
“Discretion and Independent Judgment” Definition
•
Power to make independent choice based on comparison & evaluation of
possible courses of action without immediate direction or supervision on
matters of consequence
• Skill or knowledge not equivalent
•
13
Decision making regarding management policies/procedures; can deviate
from established policies without approval; can negotiate and bind
company on significant matters; carries out major assignments; performs
work that substantially affects business operations; provides consultation
or expert advice to management
Overview of Key Legal Requirements
•
California Administrative Exemption Summary
•
Work directly relates to management policies or general business
operations of employer or customers + assists proprietor or
specialized work requiring specialized training or special
assignments
•
Common Misclassification Issues:
• Jobs involve production (product or service of business) or sales
• Jobs do not involve specialized work
• Jobs involve processing reports/data, but lack analytical work and
recommendations
14
Overview of Key Legal Requirements
•
California Professional Exemption Summary
•
Licensed professional (of 8 specified) or learned or artistic profession
in advanced field of science/learning after prolonged course of study
• Subset: Computer Professional requiring highly skilled in
theoretical & practical application of systems analysis,
programming or software engineering
•
Common Misclassification Issues:
• Advances in technology have decreased specialized technical
aspects of some jobs (i.e. web/graphics designers)
• Coders, testers with lofty job titles
15
Overview of Key Legal Requirements
•
California Executive Exemption Summary
• Supervises at least 2 full-time employees with authority to hire/fire &
>50% of time spent in supervisory functions
• Common Misclassification Issues:
•
“Working” managers performing same duties as direct reports
• Having handful of direct reports
16
Risks of Misclassification
•
Worst case scenario example:
•
Employee has worked in same job for 5 years, regularly works 45
hours per week, & paid $40k/year. Employee is very detail-oriented
and keeps a calendar of each day’s work hours. If employee’s job is
determined to be nonexempt:
• Statute of Limitations: 3 years under California Labor Code; 4
years under California Unfair Business Practices law
• Legal Exposure: $19.23/hr X .5 = $9.62/hr X 5 hrs/week =
$48.08 X 52 weeks X 4 = $9,999
• Plus attorneys’ fees (your own + the plaintiff’s), expenses,
downtime
•
17
Even worse case scenario: More than one employee in same job
Meal & Rest Period Considerations
(California-Specific)
18
•
Additional risk of misclassification
•
California Labor Code provides penalty of one additional hour’s pay for
each work day in which meal or rest period is not provided
•
Timesheets not typically required for exempt employees, thus no way to
prove meal & rest periods provided/taken
•
Statute of limitations held to be 3 years
•
Brinkley and Brinker cases on appeal to California Supreme Court
Impetus for Overtime Exemption Analysis
Salaried
Worker
Overtime
Jobs
Making
Headlines
19
Gut Feeling
about Jobs
OT
Exemption
Review
Regular
Audit
Getting Started
•
Consider combining Overtime Exemption Analysis Project with another
related project
•
•
20
Example: Total Compensation Review or update of job descriptions
or new HRIS systems
Benefit: Creates efficiencies by addressing multiple issues and
provides more context for job changes
Getting Started
Announce Project
Educate Managers
Select Jobs to
Evaluate
21
Selecting Jobs to Evaluate
•
22
Jobs that raise “red flags”
•
Entry-level or trainee
•
Manager title but no direct reports
•
Catch-all titles: Analyst
•
Sales jobs with non-sales titles
•
Jobs that involve processing data, running reports
Selecting Jobs to Evaluate
23
Good
Better
Best
• Start with lowest paid
exempt jobs
• Follow job family to
obvious cut-off
• Include all exempt jobs
below Director
• Analyze gray area
exempt positions
• Include “red flag” jobs
regardless of pay or
grade
• Include catch-all titles
like Analyst, Project
Manager
Data Collection Alternatives
Observation
Interviews
Questionnaires
Job Descriptions
Job Titles
24
Common Pitfalls to Avoid during Analysis
By-Passing
Direct Manager
• Imperfect information
• Missed opportunity for
buy-in
• Surprises = pushback
25
Relying on Job
Descriptions
• Doesn’t tell % of time
spent on each duty
• Is the person really doing
that job?
• Court rulings based on
actual job performed, not
description
Information-Gathering Considerations & Tips
26
•
Who should conduct the analysis?
• Internal HR with in-house or outside counsel review
• External specialist – if attorney, opinion is attorney-client privileged
•
Need thorough understanding of employee’s duties
• Insufficient to rely on manager’s insistence of importance of job
• Another data point: performance reviews
•
Determine percentage of work time spent on specific duties
Information-Gathering Considerations & Tips
27
•
How to determine “discretion and independent judgment”?
• Do not ask: “does the employee exercise discretion and independent
judgment?”
• Ask definitional questions with specific examples
•
Collect data on hours worked by employees in question
• Travel time?
• Eligible for production bonuses?
Analysis of Selected Jobs
•
Jobs that have been subject of lawsuits:
•
•
•
•
•
28
Pharmaceutical sales representatives
Account executives
Mortgage loan processors
Insurance claims adjusters
Variety of computer professionals
Implementation Issues
29
•
Logistics of moving nonexempt employees out of exempt salary structure
•
Anomalies may result:
• Employees making more than their boss due to overtime
• Same job at different locations may have different exemption
classifications
• Treat differently or make the job nonexempt for all locations?
•
Determine extent of “back” overtime
• Factors to consider: Has scope of job changed at particular time? Is
job changing now?
Implementation Issues
Who will make
ultimate decision?
• Sign-off by CEO
• Executive Team
30
Management
Decision-making
Pitfalls
• Advocating for
“pet positions”
• Not addressing
back overtime
• Company
decides to take
“calculated” risks
Implementation Issues
31
•
Release Agreements
• Cannot condition payment of wages owed on release agreement
•
HR “Public Relations” problem
• Need to explain why we didn’t get this right the first time
Implementation Issues
•
32
Communicating the Results
• Manager Training
• FAQ’s are helpful
•
Announcement to Employees
• Meetings or Memo?
• Assuring employees that change in exemption does not mean
demotion or that job is not important
•
Department meetings – head of functional area explains
•
One-on-one meetings – impacted employee and manager discuss
Resources
33
•
Industrial Welfare Commission Wage Orders and DLSE Enforcement Manual
(www.dir.ca.gov)
•
Department of Labor (www.dol.gov)
•
Employer Resource Institute, “Who’s Entitled to Overtime: How to Avoid
Mistakes When Classifying California Employees” (2009)
(www.employeradvice.com)
Thank You!
Mary L. Topliff
Law Offices of Mary L. Topliff
555 Montgomery Street, Suite 1650
San Francisco, CA 94111
415/398-9597
[email protected]
www.joblaw.com
34
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