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Transportation Webinar: Applying the New Overtime Regulations in the Trucking Industry

Transportation Webinar: Applying the New Overtime Regulations in the Trucking Industry

(November 15, 2016)

Starting December 1, 2016, long-awaited overtime rules are scheduled to take effect. How well do you understand these new regulations?

Smith Moore Leatherwood's Alex Maultsby explains the new Department of Labor (“DOL”) regulations and how to pay exempt and non-exempt employees, as well as who falls into each category. Fredric Marcinak moderated this presentation.

Please click here view the PowerPoint presentation.

C. Fredric Marcinak
T (864) 751-7691
F (864) 751-7800
Alexander L. Maultsby
T (336) 378-5331
F (336) 378-5400
Associated Industries

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Getting Ready for the New Overtime Rules 

Classification:  Exempt vs. Non Exempt

Why does it matter?

  • Exempt employees are excluded from overtime pay requirements
  • Non-exempt employees are entitled to overtime (not exempt from the FLSA)

FLSA Exemptions

  • In order to be classified as exempt under the “white collar” exemptions, three requirements must be met:
    • Minimum Salary
      • Currently = not less than $455/wk
    • Paid on a salary basis
      • without any improper deductions
    • Exempt Duties
  • Employees are exempt from the Act entirely if they fall within the Motor Carrier exemption
    • Any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service
    • Driving in interstate commerce
    • Performing safety-sensitive functions

White Collar Exemptions

  • Executive, administrative, and professional
  • Highly compensated, computer, and outside sales
  • Executive
    • Management of enterprise or dep’t
    • Direct the work of 2+ FT employees
    • Authority to hire/fire or recommend action
    • Currently -- Salary of at least $455/wk
  • Administrative
    • Office or non-manual work related to mgmt, operations, or customers
    • Primary duty = exercise discretion and judgment with “matters of significance”
    • Currently -- Salary of at least $455/wk
  • Professional
    • Learned Professional
      • Primary duty = work requiring advanced knowledge, that is predominantly intellectual, and requires exercise of discretion and judgment
      • Advanced knowledge is in a field of science or learning
      • Prolonged course of specialized academic training
      • Currently – Min. salary or fee basis of at least $455/week
    • Creative Professional
      • Primary duty is work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor
      • Currently -- Salary of at least $455/wk
  • Highly Compensated Employees
    • Office/non-manual work
    • Currently – must be paid $100k or more annually
      • and at least $455/wk on salary/fee basis
    • Regularly perform at least one of the duties of an executive, administrative, or professional employee identified in the exemption test
  • Outside Sales
    • Primary duty is making sales or obtaining orders or contracts for services; and
    • Regularly work away from employer’s place of business.
    • Not subject to minimum salary requirement.
  • Computer Employee
    • Currently -- Salary of at least $455/week or fee basis of at least $27.63 per hour
    • Computer systems analyst, programmer, software engineer, or other similarly skilled worker performing specified duties relating to analysis, development, design, testing, etc.

New FLSA Overtime Rules – Nuts & Bolts

For Executive, Administrative, & Professional Exemptions

  • Raises salary threshold >100%
    • From $455 per week
      • equivalent of $23,660 per year
    • To $913 per week
      • equivalent of $47,476 per year

For Highly Compensated Employees

  • Raises total annual compensation requirement
    • From $100,000
    • To $134,004
      • or the 90th percentile of full-time salaried workers nationally

FLSA Coverage

  • Motor Carrier Act Exemption from Overtime
    • Mandatory overtime compensation does not apply to any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service
    • Driving a vehicle over state lines is the clearest example of driving in interstate commerce – but it is not required (look to practical continuity of movement)
  • Motor Carrier Act Exemption
    • Exemption may apply to all drivers if all drivers were likely or reasonably have been expected to drive in interstate commerce
    • Does the employee’s position affect safety of operations?

Wells v. AD Transport Express, 2016 WL 3213396 (ED Mich. 2016)

  • Wells worked as driver and as troubleshooter (desk job)
  • Argued that he did not drive interstate much and should received overtime
  • Court applied 4 month rule
    • He had driven interstate within 4 months
    • No overtime

Mazzarella v. Fast Rig, 15-3116 (3d Cir. 2016)

  • Overtime claim
  • Hauling fracking water within PA
  • Testimony that sometimes fracking water pumped from ponds and hauled out of state
  • Not enough to prove practical continuity of movement.
  • Entitled to overtime.

FLSA Collective Actions

  • Potential Claims
    • Low hurdle for a plaintiff to overcome to get a class certified and notice sent out to potential members
    • Defense costs quickly add up in defending a lawsuit
    • FLSA collective action claims are rising in all industries but it appears that the transportation industry is a major target
  • Potential Claims
    • Employees are entitled to unpaid overtime and possibly two-times that amount as liquidated damages
    • Employees are also entitled to reasonable attorney fees and costs
  • Koehler v., 2:12-cv-02505 (D KA 2016)
    • Proposed settlement of class for $5.1M
    • Judge rejected for nondisclosure/confidentiality restrictions and disagreed with payment to class reps
    • $1.7M of this was attorney’s fees

USDOL will increase the salary threshold – every 3 years

By January 1, 2020

  • Standard salary threshold expected to be > $51,000
  • Continuing to increase every 3 years thereafter

Identify Exempt Positions Under Threshold

  • Identify exempt positions where employees make less than $47,476
    • Can include non-discretionary bonuses and commissions
    • Up to 10% of required salary level
    • If paid quarterly or more frequently
  • For exempt positions making less than new threshold
    • Feasible to raise salaries?

Analyze Options If No Longer Exempt

  • Option A:
    • Divide current salary by 40 hours, and pay at an hourly rate
    • And pay overtime pay, when applicable
  • Option B:
    • Convert EE to hourly, based on actual hours works
    • Attempt to make net cost the same
      • Using lower rate to account for expected overtime
    • **Requires reliable information about hours worked
  • Option C:
    • Convert EE to salaried non-exempt
    • And pay overtime pay, when applicable
  • Option D:
    • Institute a fluctuating workweek method
    • And pay overtime pay (at half regular rate) for hours in excess of 40 in a workweek
    • Must have:  varying work schedules, fixed salary, regular rate above minimum wage, mutual understanding, consistent with state law

Reclassification of EEs: Factors To Consider

  • Costs to absorb and manage overtime
  • Morale issues
  • Potential inconsistencies – if EEs in same position classified differently because paid differently based on seniority, local economics, other factors
  • Workload shift – from hourly to exempt managers
  • Potential use of independent contractors
  • Potential effects on benefits
    • Examples:
      • accrual of PTO
      • rules relating to year-end cash-outs
      • LTD or life insurance
  • Policy restricting overtime
  • Ability to prospectively change compensation
  • Employment contract
  • State law

Communication Plan & Training

  • Explain reason for change
  • Focus on positive:
    • Paid for time worked “after hours”
  • Be prepared for the fallout
    • Loss of status
    • Tracking time
    • Loss of flexibility
  • Train non-exempt employees to track & report time
    • Reset manager expectations re work after hours
    • Use of phones/laptops
  • Travel for non-exempt employees
  • Manage Overtime