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UNDERSTANDING THE NEW OVERTIME REGULATIONS

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UNDERSTANDING THE NEW OVERTIME REGULATIONS

By Amy J. Traub and Adam R. Seldon

The U.S. Department of Labor (“DOL”) issued the final version of the much-anticipated new Fair Labor Standards Act (“FLSA”) regulations regarding the salary threshold for exempt employees. The following  provides employers with insight into how to understand, and ultimately apply, the new regulations, which will affect employers of all sizes in all industries across the country.

History of the New Overtime Regulations

The FLSA provides an exemption from the overtime pay requirement for workers employed as executive, administrative, and professional employees (“exempt white-collar employees”). The FLSA also exempts from overtime pay highly compensated employees (“HCEs”).

To be exempt, an employee must meet three criteria: (a) the employee must be paid on a predetermined “salary basis” (i.e., the employee’s predetermined salary cannot be reduced because of variations in the quality or quantity of work performed); (b) the employee’s salary must meet a minimum salary threshold (currently $455 per week; i.e., $23,660 per year); and (c) the employee must meet the “duties” test of the applicable exemption (i.e., the employee must perform certain white-collar job duties).
On March 13, 2014, President Barack Obama signed a memorandum directing the DOL to update the FLSA’s overtime regulations governing exempt white-collar employees. On July 6, 2015, the DOL announced the much-anticipated proposed regulations, which, among other things, more than doubled the salary threshold required for an employee to qualify as an exempt white-collar employee. In July, we advised that the proposed overtime regulations would have a significant impact on all industries and that employers should analyze their current workforce and anticipate where changes should be made rather than wait for the proposed overtime regulations to be finalized.

The DOL received more than 270,000 comments regarding the proposed overtime regulations, and on March 15, 2016, the DOL sent the proposed overtime regulations to the Office of Management and Budget (“OMB”).

The Final Rules Are Here

At long last, on May 18, 2016, the DOL released the final overtime regulations, which will become effective in 200 days (i.e., on December 1, 2016). The final overtime regulations:

  • increase the exempt white-collar employee salary threshold from $455 per week (i.e., $23,660 per year) to $913 per week (i.e., $47,476 per year);
  • increase the annual compensation requirement for HCEs from $100,000 to $134,004;
  • require that the salary thresholds automatically update every three years (the salary threshold for exempt white-collar employees will be set at the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Region {currently the South}; the annual compensation requirement for HCEs will be set at the 90th percentile of earnings for full-time salaried workers nationally); and
  • amend the salary basis test allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary threshold for exempt white-collar employees.

While the final overtime regulations double the salary threshold required for an employee to qualify as an exempt white-collar employee, the threshold is approximately $3,000 less than the proposed threshold that was sent to the OMB in July. Moreover, in contrast to the proposed regulations, the final overtime regulations will not require that the above-mentioned salary thresholds increase annually, which could have been a compliance headache for employers year after year. Instead, the salary thresholds will increase every three years, beginning on January 1, 2020. These minor compromised positions on the part of the DOL likely reflect the pushback Congress received from employers and management-side lawyers regarding the new overtime regulations and their failure to take into account that a nationwide salary threshold may be inflexible and illogical for certain industries and regions.

The Time to Act Is Now

On December 1, 2016, employees earning less than $47,476 will no longer be eligible for a white-collar exemption to the FLSA’s overtime pay requirements. In addition, employees who earn less than $134,004 can no longer qualify as exempt HCEs. Importantly, the final regulations do not provide any relief or exemption for small businesses, nonprofit organizations, or higher education institutions, which, like all other employers, will now be burdened with having to reclassify employees or provide raises to administrative and executive employees.1

To the extent employers have not otherwise prepared for the final overtime regulations, they should begin to do so immediately. Employers should start by identifying all employees currently classified as exempt under one of the white-collar exemptions. They should then determine what changes, if any, need to be made with respect to each affected employee. While the new regulations do not make any changes to the various “duties” tests under the FLSA, we recommend that employers take this opportunity to do a full-scale audit of their exempt classifications, analyzing the duties each worker performs, along with his or her current compensation structure. Indeed, as set forth above, an employee can be exempt only if he/she meets all three criteria for exemption – the salary basis test, the salary threshold test, and the duties test. Thus, currently exempt employees should be reviewed from all three standpoints to ensure proper application of an exemption. In fact, if/when the DOL begins enforcing its new regulations, employers can expect a thorough three-point review – not a determination based just on the salary threshold – of exempt employees, so it is imperative to shore up exemptions.

Employers also need to ensure that they take into account all forms of compensation that employees receive when conducting their exemption analysis. The new overtime regulations allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new salary threshold for exempt white-collar employees; however, such payments must be made on a quarterly or more frequent basis. While nondiscretionary bonuses and incentive payments may be used to satisfy up to 10 percent of the new salary threshold, employers must carefully consider whether such forms of compensation are truly “nondiscretionary.” If an employer improperly determines that a discretionary bonus is nondiscretionary and the employee does not otherwise earn the requisite salary threshold, the employee cannot be classified as an exempt white-collar employee. Employers should also take into account the employee benefits that exempt employees receive and whether any changes to benefit eligibility need to be made in light of the new overtime regulations.

Is There a Magic Formula to Address the New Changes?

Importantly, there is no “one size fits all” solution to the new overtime regulations. While employers could simply reclassify each affected worker as “nonexempt hourly,” this may not be the recommended course of action, depending upon a number of factors, including not only budgetary concerns but also such considerations as (a) the amount of anticipated overtime for those employees and whether that amount can feasibly be controlled; (b) the culture of the employer’s organization; (c) employee morale and how a change from being an exempt employee to punching a clock could be perceived; and (d) what actions competitor companies within the employer’s industry will take regarding the new regulations and whether those actions could affect employee retention.

Other potential options apart from reclassifying employees as nonexempt hourly include meeting the new salary threshold to keep employees exempt, taking advantage of the fluctuating workweek methodology of paying overtime (where appropriate and lawful), limiting working hours to 40 per workweek, and other strategic options. Employers should understand that certain solutions may work best for some positions and/or locations but not for others, so a case-by-case analysis is recommended.

Employers, however, should understand that if they do simply reclassify workers as nonexempt hourly, it may not be as simple as dividing the employee’s current salary by 52 weeks and then by 40 (or some other regularly worked number of) hours, as this formula may – and often will – inadvertently provide the employee with additional compensation. Before an employer decides to reclassify workers as nonexempt hourly, there are multiple other mathematical formulas to consider in terms of reverse engineering a currently exempt employee’s annual salary into an hourly rate. Employers should also be mindful of the fact that being reclassified as nonexempt will also trigger other FLSA-required payments, including for time spent traveling, training, and responding to/drafting work-related e-mails and text messages outside the office.

Significantly, the vast majority of employers faced with tackling the new regulations will likely be faced with the additional challenge of not knowing exactly (or even approximately) how many hours their affected workers may typically be working, since exempt employees are not required to record their time, which may lead to further budgeting issues if an employer underestimates the amount of overtime these employees will work in the year ahead. As a best practice, employers should consider requiring potentially affected employees to record their hours during the 200-day compliance period so the employer can better assess whether the employees will work overtime in the year ahead and, ultimately, determine the best strategy for applying the new regulations to those workers.

Takeaway

The clock is ticking, as employers have only 200 days to comply with the new regulations. Given the DOL’s concerted efforts to increase overtime eligibility, it should come as no surprise that enforcement efforts will follow shortly. Therefore, the time to analyze your workforce and prepare for the salary threshold changes is now. The decision is a personal one that depends on a multitude of factors relevant to the organization at issue, and it should not be taken lightly.

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How to use data to protect and power your business

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How to use data to protect and power your business 1

By Dave Parker, Group Head of Data Governance, Arrow Global

Employees need to access data to do their jobs. But as data governance professionals, it’s our job to protect it. Therefore, we must perform a fine balancing act to weigh robust data protection against the productivity of workers who need the data to maintain business-as-usual working processes.

Data grows exponentially, and most organisations will admit that they simply don’t know what data they have, where it is, and the controls that exist around it. This creates 2 challenges:

  1. Burgeoning amounts of unstructured data makes the business increasingly vulnerable from external attackers or internal data breaches.
  2. Because data is the key to understanding a customer’s wants and needs, if the business can’t identify its data and unlock its value, it’s at a competitive disadvantage.

As a European investor and alternative asset manager, here at Arrow Global we take care of £50bn of assets and own a data estate exceeding 160TB. How we manage our data is key to our success. We understand the difficulties involved in opening up environments to allow people to work productively, while at the same time locking them down to protect our organisation.

When it comes to analytics, I believe that Arrow is highly proficient because we employ a talented team of data scientists. But even for us, the sheer volume of raw and processed data, that resides in both our structured systems and unstructured data repositories, has the potential to put our business at risk.

We know there’s always more that can be done to strengthen our security posture and ensure regulatory and contractual compliance, while at the same time using our data to drive the business forward.

Data protection isn’t just about compliance

For many organisations, data protection has centred on demonstrating compliance with the GDPR. At Arrow, our efforts have gone one step further to include our contractual exposure.

Being a more mature data organisation, we had previously tried to develop an application in-house to manage our data estate. However, with 160TB across the company in production data alone, we simply couldn’t achieve the scale we needed to handle the sheer volume of data. Of course, the volume is just the start – once you know what data you have, you then need to be able to categorise the data and put it into a structure, so the business can analyse it for a specific use case.

We knew we needed to go to market to find an industrial-strength data discovery product to replace our in-house application. By aligning our choice of product to our overall IT and change strategy, meant that ultimately, we ended up with a far better outcome than we’d anticipated.

Position data as both a risk and an asset

Data touches every part of an organisation, so when it came to building a business case for buying-in a data discovery software platform, we approached it in a way that would speak to different people at the same time. We did this by posing the question:

“What do we want to do with data in a way that is GDPR-compliant, contractually-compliant and enables us to better service our clients?”

These are the black and white tests of data governance – to recognise the importance of securing and protecting data. They’re applied in a way that enables us to commoditise data and use it to drive the business forward, by forcing us to consider how we would use the data – for example, creating value-based pricing for our clients.

In aligning the business case to initiatives that were already priorities within the boardroom, we knew that we’d gain the attention of the senior leadership team and it would be easier to get the buy-in and budget we needed. And in the end, everyone wins – we get what we need to protect the data, and the business gets to distil the data’s value to better meet our customers’ expectations.

Dave Parker

Dave Parker

Get visibility of data at scale

For us, things got really exciting once we were able to see all of our data at scale. We chose Exonar because it allowed us to discover our data in ways that other products couldn’t. And the interface between the user and Exonar meant that everyone – both technical and non-technical users – could understand the technology and the findings it revealed.

When we saw exactly what data was in the estate, where it was and who had access to it, data security became much easier and the risk of data being compromised was dramatically reduced. We can see exactly where the vulnerabilities are and restructure how our data is stored to strengthen security. Then over time, we can use search, workflow and analysis to optimise the infrastructure and continually identify new areas to improve.

Commercialise the data

From a wider-business perspective, once people can see the data, they can start asking “What if…” to query it and distil its value. But it’s more than just the data itself. It’s not uncommon for data relating to the same thing to exist in unconnected systems across the business. For example, customer interactions and incidents or events.

Exonar is capable of joining the dots in disparate data sets. By stitching these data sets together, we can get a better overall view of our customers and use the outcomes to think of new, different or better ways of serving them through enhancing or adapting our offerings.

Why other financial services businesses should also take a smarter approach to data

  1. By changing the way you approach data, you can use it to protect and power your business and the people you serve.
  2. By positioning data as both a risk and an asset, you elevate its position to give it priority in the boardroom. Ultimately, it’s data that helps the business make informed strategic decisions about how to strengthen its competitive advantage.
  3. By gaining visibility of data at scale, you can see exactly what data you have and where it is. This gives the business confidence about the actions needed to ensure it is secured in both a regulatory and contractually compliant way, and that people are doing the right thing with data at all times.
  4. And joining different data sets provides you with a single view of ‘X’ within your data, no matter where it is. Helping to support your wider-business strategy and priorities, it gives you the information you need to secure a business advantage and generate value.
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How business leaders can find the right balance between human and bot when investing in AI

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How business leaders can find the right balance between human and bot when investing in AI 2

By Andrew White is the ANZ Country Manager of business transformation solutions provider, Signavio

The digital world moves quickly. From keeping up with consumer behaviour patterns, to regulation and compliance, the most successful organisations are always on the cutting-edge of technological developments.

However, when it comes to investing in artificial intelligence (AI), a hard and fast strategy does not guarantee a top spot amongst the league of tech greats. Instead, it pays to take a considered approach to balancing reliance on automated processes with a human touch. Why? Because creative and strategic thinkers are the true propellers of innovation; automation is simply the enabler.

The International Monetary Fund (IMF) developed the ‘Routine Task Intensity’ (RTI) index as a measure of which processes are likely to benefit most from automation. According to this metric, jobs requiring analytical, strategic, communicational and technical skills score low on the RTI index, while simple, repetitive tasks scored highly.

The lesson for business leaders here is simple; your digital investments are just as important as your stake in talent. When deciding which processes to automate, start simple, and remember to value the skills and potential of your people.

Keep customer-centricity at your core

Customer-centricity means that every business decision, dollar spent and new hire is centred on one question: how does this benefit my customer? Investments in AI are no different. To be truly successful, they must have a customer-focused outcome.

Where companies get this wrong is by implementing cost-saving measures or ‘copy and paste’ software that fails to improve the customer experience – often having the adverse effect.

Take the virtual chat-bot, for example; if implemented poorly, it can send your customers into a frustrating and seemingly infinite cycle of dead-ends. The modern consumer is far too digitally savvy for this shortcut, and will quickly move onto the next merchant offering a more seamless customer service experience.

To guarantee your investments are delighting rather than infuriating your customers, it helps to take an outside-in perspective of your business processes, aided by Customer Journey Mapping (CJM).

Before you commit to digital investments, CJM can trace and map each customer touchpoint, signalling pain points or conversion rates throughout their journey. These data-driven insights lead you to the areas that would benefit the most from automation, instead of implementing a broad band-aid solution.

Avoid the ‘set and forget’ method 

When investing in enterprise-wide AI, the ‘set and forget’ method rarely works. Real transformation requires an ongoing dedication to refining and improving AI-driven processes, as well as adapting them to the evolving needs of your customers. This is the best way to achieve customer loyalty, by proving that your organisation listens to, and understands its users.

A human perspective is invaluable here, paired with process mining – a method that thrives on finding process inefficiencies – to create a consistent feedback loop of improvement.

During periods of uncertainty, customer loyalty is everything, so aim to protect it at all costs.

The power of your people

The rise of automation can be linked to the corporate world’s obsession with speed and efficiency. However, the psychology behind this goes deeper than being the biggest and fastest producer; it’s also about reallocating resources into attracting and retaining the brilliant minds that drive companies into the future.

When communicating digital change, it’s critical to highlight the valuable impact AI has on augmenting jobs; removing the burden of mundane, repetitive tasks and allowing for more strategic skill-sets to shine through. For lower-skilled workers, invest in upskilling or re-education where possible.

Successfully rolling-out digital transformation plans means that every employee across all tiers of your company understands the value of AI. The starting point here is education to achieve buy-in. Change communications must be accessible, constructive and value-focused, supported by key culture influencers who champion automation within teams.

Enterprise-wide buy-in is an important element of refining and improving digital processes, as cross-functional collaboration can offer valuable insights into common pain points or inefficiencies ripe for automation. Supported by process mining, collaboration provides a holistic view of how each investment will impact other processes. There is no point investing in automation that streamlines one process and makes another more people-centric, so be sure to take a balanced approach to your investments.

Remember, AI is not about creating an army of robot workers; it’s about increasing efficiency and productivity so that an organisation, and its people, can work smarter.

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Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger

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Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger 3

By Dr.Roger Firestien, Author of Create In a Flash.

The fight, flight, freeze survival response – or FFF for short – is designed to mobilize our brain and body to fight an enemy, run from a tidal wave or freeze to hide from a predator.

FFF is how humans react when they encounter a dangerous situation. It is a primal response that happens instinctively even before we are able to think about the situation we are confronting.

The FFF alarm causes our brain to focus on negative memories, probably to scan them to avoid repeating dangerous situations and negative outcomes.  We get tunnel vision as our pupils dilate to increase our focus and long-range vision, but as a result we lose our peripheral vision.   

Humans use the FFF response and so do organizations.

When organizations encounter dangerous situations, like, say, trying to survive a global pandemic, they can respond by either fighting the situation, fleeing from the situation, or freezing and waiting for the situation to pass.

I would like to propose a fourth strategy for organizations to deal with a danger like the pandemic. It is the fourth “F.”  The farm response. More on that later.

What kind of organization is yours?

The fighter organizations were the ones that fought the idea of a global pandemic or pushed back against the research that reported how serious the virus was.  Think of the meat processing plants that didn’t provide proper protective gear or the religious organizations that refused to take a break from large services.

The results were catastrophic for the organizations and deadly to the employees and worshippers.

It is pretty easy to identify the fleeing organizations.  You don’t see them anymore.  Unfortunately, this is the organization that just doesn’t have the resources or the energy to fight.  You will recognize them by the “For Rent” signs in the windows of the buildings they used to occupy.

The organizations that freeze  are a little more difficult to identify.  They are still around but are frozen by fear. They are the organizations that, although they are in a position to move forward, are too frightened to take a risk or even look at the periphery of their business. Their tunnel vision blinds them to opportunity.  The freezers hide and wait for the danger to pass.  They are the ones who miss out on possibilities.

For example, if you are in the business of supplying concessions to sporting events, airports and national parks, your business is in deep trouble now. So, what are some ways to keep people buying food and drinks with so many venues closed?

Dr.Roger Firestien

Dr.Roger Firestien

Many national parks are now open and visitors need to eat.  How can you sell food while supporting social distancing? Answer: Sell picnic meals to your patrons.  And, sell a blanket that commemorates the park that diners can spread out and have lunch while social distancing with their families. Then, they’ll keep the blanket that reminds them of their visit to the park.

Sound like a good idea? It sure does. You can keep your park concession business, allow people to social distance and add to your product line with that commemorative blanket. Did the company implement the idea? Unfortunately, they did not. They froze and missed the opportunity.

However, businesses are finding ways to optimize their organization and capture opportunities. They are the farmers. The farmer organizations study the situation, just like farmers study the weather and the land. They look at the resources available to them and get to work.

Farmer organizations pivot and get creative.

Distillers, who before the pandemic, were making vodka, whiskey, gin and other spirits quickly changed their operation from distilling booze to distilling sanitizer.

Telemedicine, which had limited acceptance before the pandemic, almost immediately became the accepted way to deliver care.  Now, the doctor comes to you.

Fitness trainers are conducting their sessions via Zoom or in person outside on sidewalks in front of their gyms so they can social distance.

My favorite ranch, SK Herefords, sells their beef at local farmer’s markets in the Western New York area. This spring when the large packing houses shut down and grocery stores were limiting the amount of beef customers were able to buy, my farmer friends were there at the markets with locally produced farm-raised beef.  Sales soared and demand skyrocketed.

Why? The farmers were ready.  They used their resources and were not afraid to optimize them in a rapidly changing and volatile environment. Farmers live with constantly changing weather conditions and market prices and are accustomed to rapid change.

To operate with constant change, all of us, like farmers, need to be constantly creative.  Phil Keppler, my philosopher farmer friend from SK Herefords says, “Creativity helps you to not look at things as a problem. It’s trying to find the solution – and that’s the exciting thing about it. Things aren’t problems anymore. It’s just difficult situations and you’re trying to find a solution to that situation.”

A good mindset for what our world is experiencing now… it’s a difficult situation and we are creating solutions daily.

Fight, flight, freeze or farm. What kind of organization is yours? And, what can you learn from “the farmers?”

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