Transition to Non-exempt Payroll
This brief video provides an overview of the transition from the exempt payroll to non-exempt payroll based on recent changes by the U.S. Department of Labor related to overtime eligibility.
The U.S. Department of Labor announced a change in the Fair Labor Standards Act recently that will make some jobs at Duke newly eligible for overtime pay. The change increases the minimum salary threshold at which a position would be considered “exempt” from overtime pay from $23,660 per year to $35,568. per year effective January 1, 2020. Any staff member paid below $35,568 would be transitioned to a non-exempt status and would be eligible for overtime pay once the change takes effect. Here are the highlights of the impact:
- The change in the eligibility for overtime pay is a result of new federal regulations that applies to all employers covered by the Fair Labor Standards Act.
- Less than 100 staff members at Duke will be reclassified into non-exempt positions and become newly eligible for overtime pay beginning Jan. 1, 2020.
- The reclassification does not affect a staff member's job title, job level, or role as described in the job description. However, your department may choose to modify your work hours or participation in activities beyond a normal 40-hour workweek in consideration of potential budget impacts related to managing overtime pay.
- When the regulation takes effect, staff members will be required to record their time using the applicable tool to submit the hours worked or paid time off every two weeks. Any overtime must be approved in advance by your manager.
- As long as you remain in your position and work schedule, Duke will continue your current benefit time accrual rate. If you transfer to another job at Duke your benefit time accrual will be based on the exempt or non-exempt status of the new position.
- Eligible non-exempt employees receive a traditional pension plan called the Employees’ Retirement Plan (ERP) paid entirely by Duke. Beginning January 1, 2020, Duke’s contribution to the Faulty and Staff Plan will be discontinued. However, eligible non-exempt employees can continue to make voluntary pre-tax contributions, Roth 403(b) after-tax contributions, or a combination of both to the Faculty and Staff Retirement Plan.
- All staff affected by this change will be moved to the biweekly payroll beginning January 2020. Because this first paycheck only covers a few days in January and will also include deductions for things such as parking and health benefits, Duke is providing impacted employees with a supplemental payment in their January 17 paycheck equivalent to two weeks of pay based on their work schedule. This payment is intended to assist with cash flow issues related to the transition. There is no repayment required for this two weeks of additional pay from Duke.
Questions and Answers
Q: What is the FLSA?
A: FLSA stands for Fair Labor Standards Act, which is a federal law administered by the U.S. Department of Labor. The act establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state, and local governments. It also establishes threshold requirements that must be present before a position can be “exempt” from the requirement to pay overtime. One of these requirements is the position must pay above a minimum annual salary amount.
Q: Who is entitled to overtime pay under federal law?
A. Most non-exempt employees covered by the Fair Labor Standards Act ("FLSA") must be paid at least 1.5 times their regular rate of pay for any hours beyond 40 in a workweek. Please note that time off hours, other than designated or discretionary holidays, do not contribute to overtime hours.
Q: What is being changed as a result of the new regulations?
A: As a result of the Department of Labor’s announcement regarding updates to the Fair Labor Standards Act (FLSA), the following changes will be made:
- Increasing the FLSA “salary test” threshold increases the minimum salary threshold at which a position may be considered “exempt” from overtime pay from $23,660 per year to $35,568 per year.
- Any staff member paid below $35,568 (regardless of job duties) would transition to non-exempt status and be eligible for overtime pay once the change takes effect on Jan. 1, 2020.
Q: Why is the salary threshold change being made?
A: The salary threshold was last changed in 2004 and has not kept pace with the increase in wages. The change was proposed as a means to raise pay for workers by increasing their salary or making more people eligible for overtime pay.
Q: Can I opt out of this change?
A: No. This change is mandated by the U.S. Department of Labor in accordance with federal law. It applies to all employers and employees covered by the Fair Labor Standards Act.
Q: How many employees at Duke will become newly eligible for overtime?
A: Based on early calculations, Duke initially estimated the change could affect about 100 employees.
Q: Will my job responsibilities or role change as a result of being reclassified to a non-exempt position?
A: Your responsibilities as defined by your job description will not change as a result of being classified into a non-exempt position. However, your department may choose to modify your work hours or participation in work-related activities beyond a normal 40-hour workweek in consideration of potential budget impacts related to managing overtime pay.
Q: Is being classified in a non-exempt position a demotion?
A: No. The reclassification will not affect your base rate of pay, job title, job level, or role as described in your job description. A position’s classification as exempt or non-exempt basically determines whether you are eligible for overtime pay and how you record your time worked.
Q: Will this change how I record my work time?
- Yes, you will need to submit a timecard every two weeks to record the hours you work and the hours you take as paid time off.
- Depending upon your departmental business processes, you will submit this time either electronically through the Duke@Work self-service website or through the time and attendance system. Time is submitted on a biweekly basis for supervisor approval.
- If you are approved to work overtime, you receive 1.5 times your regular rate of pay for any hours you work beyond 40 in a workweek.
- You will need to request approval in advance for working any overtime hours.
- The frequency of pay will change from monthly to biweekly.
- Deductions are taken from different cycles, i.e., dental insurance is deducted from the first biweekly check of the month and health insurance is deducted from the second biweekly check of the month. A schedule of deductions is available on the Human Resources website.
Q: What positions are affected?
A: There are different types of positions or job classifications that will be impacted by the change in federal regulation. The preliminary list of positions is currently being reviewed with the appropriate Management Centers and entities. After the list has been vetted, a final determination will be made for all staff members in the affected job classifications whose positions will be reclassified as non-exempt.
Q: How does the salary threshold apply for a staff member working part-time or in an exempt position who only works a 9- or 10-month schedule?
A: If the salary paid to an individual during those 9 or 10 months does not exceed the annual salary threshold, the position will become non-exempt, unless the function of the position excludes the job from meeting the salary threshold requirement.
Q: If an annual salary is $60,000, well above the salary threshold of $35,568, but the position is .5 FTE, would the position be classified as non-exempt and eligible for overtime?
A: Yes, the prorated salary would be $30,000 and below the salary threshold, so the employee in the position would be reclassified as non-exempt and eligible for overtime pay.
Q: As a non-exempt staff member, do I lose flexibility of where and when I work?
A: All work time, regardless of exempt or non-exempt classification, should be discussed and approved in advance by your manager. Staff members in non-exempt positions and departments have an obligation to ensure all time worked is tracked and reported accurately to ensure approved overtime is compensated according to FLSA guidelines.
Q: I'm currently paid a salary and my job title is manager. Am I exempt from overtime pay?
A: Job titles do not determine exempt status. The fact that a manager is paid on a salary basis does not alone provide sufficient ground to exempt that employee from the FLSA's minimum wage and overtime requirements. For an exemption to apply, an employee's specific job duties and salary must meet all of the applicable requirements provided in the Department of Labor's regulations.
Q: Will this change affect my retirement plan participation?
A: Yes. Duke provides a defined benefit retirement plan to eligible non-exempt employees called the Employees’ Retirement Plan (ERP). The ERP is a traditional pension plan paid entirely by Duke and is designed to provide you with a guaranteed monthly income at your retirement. Beginning January 1, 2020, Duke’s contribution to the Faulty and Staff Plan will discontinue. However, eligible non-exempt employees can continue to make voluntary pre-tax contributions, Roth 403(b) after-tax contributions, or a combination of both to the Faculty and Staff Retirement Plan. More information may be found on the Duke Human Resources website or by calling 919-684-5600.
Q: Will my time off accrual change if I am classified in a non-exempt position?
A: No. As long as you remain in your position and work schedule, Duke will continue your current benefit time accrual rate.
Q: Does retaining the benefit time accrual rate continue if I change jobs at Duke?
A: No, if you transfer to another job at Duke your benefit time accrual will be based on the exempt or non-exempt status of the new position.
Q: Which benefits will apply for new individuals who are hired into these positions?
A: Benefit eligibility for all newly hired individuals will be consistent with the existing policies for non-exempt positions effective Jan. 1, 2020. Grandfathering status only applies to current employees whose positions are being reclassified from exempt to non-exempt as a result of the new regulation.
Q: Will I have to submit a timecard?
A: Yes. Staff in non-exempt positions must submit electronic time cards in the Duke@Work self-service website or badge in/out using the Time and Attendance System every two weeks. Once submitted, the timecard is available for your manager’s approval.
Q: Will my pay be the same?
A: Your current monthly salary will be converted to an equivalent hourly rate, and you will be paid based on the hours worked each week. Your pay may vary based on the number of hours you work each week. If you are approved to work overtime, you will be paid 1.5 times your regular rate of pay for any hours beyond 40 in a workweek.
Q: What does this change mean in terms of time worked?
A: The time worked by a staff member in a non-exempt position could change based on a department’s needs and budgetary restrictions. For example, a staff member in an exempt position could work additional time outside normal business hours without any additional compensation. A staff member in a non-exempt position would be eligible for overtime pay if that work contributed to more than 40 hours in a workweek.
Q: Will I still be paid once a month?
A: Once you move to the biweekly payroll in January 2020, you will be paid every two weeks rather than once a month. You can find the pay schedule for biweekly-paid staff on the Duke’s Corporate Payroll Services website.
Q: If I am paid twice a month, when will deductions come out of my pay?
A: Deductions are taken from different cycles, i.e., dental insurance is deducted from the first biweekly check of the month and health insurance is deducted from the second biweekly check of the month. A schedule with this information to reflect the deductions and the corresponding pay cycles is posted on the Human Resources website.
Some deductions will be adjusted automatically, including: Parking, Medical Insurance, Dental Plan, Vision Plan, and Flexible Spending Accounts. Others will require the employees action, such as:
- Contributions to the Faculty and Staff Retirement Plan
- Contributions to the Credit Union
- Additional Income Tax Withholdings
Employees will be provided information regarding deduction frequency and how to make changes in advance of January as needed.
Q: Will I be able to work overtime?
A: Any overtime must be approved in advance by your supervisor.
Q: How much will I be paid for working overtime?
A: The Fair Labor Standards Act stipulates that staff members in non-exempt positions be paid at least 1.5 times their regular rate of pay for any hours they work beyond 40 in a workweek.
Q: How will overtime be tracked and paid (daily, weekly, etc.)?
A: As defined by the Fair Labor Standards Act, staff must be paid at least 1.5 times their regular rate of pay for any hours they work beyond 40 in a workweek. The overtime calculations are contingent upon the overtime option designated by your department. Your manager or supervisor will be able to provide this information. For example, a staff member may work more than 8 hours in a day, but if the cumulative work time for the week does not exceed 40 hours, no overtime would be paid.
Q: Is paid time off included for the purposes of determining overtime?
A: No, paid time off (hours from PTO banks, vacation, sick leave, etc.) do not constitute “work time” and do not contribute to the calculation of overtime. For example, if a staff member takes a vacation day on Monday and works four 10-hour days for the rest of the week, no overtime would be paid. Designated and Discretionary holidays contribute to the determination of overtime.
Q: How will my hourly rate be determined?
In most cases, a staff member’s regular hourly rate will be determined by dividing current annual salary by the current annual standard hours. If the standard hours are 40 per week, that is the equivalent of 2,080 hours in a year (40 hours/week x 52 weeks). So, if a staff member’s annual salary is $31,200 and the employee has a standard of 40 hours per week, $31,200 divided by 2,080 equals an hourly rate of $15.00. If the employee works in excess of 40 hours in a week, then they will receive overtime pay of 1.5 times the regular hourly rate. The overtime rate in this example would be $22.50 per hour.
Q: How much overtime will be allowed?
A: The amount of overtime allowed for any staff member is at the discretion of each individual department and the staff member’s supervisor.
Q: Would staff whose positions become non-exempt be permitted to continue in non-compensatory volunteer roles (Commencement, HeartWalk, Academic Advisors)?
A: According to the Department of Labor, the time could be considered compensable if the volunteer activity is during normal work hours, if the staff member is required to be on premises, or if the employee is directed to volunteer by the employer. Otherwise, time spent voluntarily in such activities outside of the employee's normal working hours is not considered hours worked.
Q: Can a department offer compensatory time instead of paying overtime? Are there any restrictions on use of compensatory time?
A: The Department of Labor does not allow for private employers to provide compensatory time in lieu of payment of overtime hours worked.