Final Regulations Issued
by Department of Labor on Overtime Exemptions
On
Overview of Regulations
The Fair Labor Standards Act (FLSA) requires overtime
compensation to be paid to all employees except those whose duties bring them
within one of five recognized exemptions.
These are the "white collar" exemptions; [the Executive,
Administrative, Professional exemptions]; the Outside Sales exemption; and
Computer Employee exemption.
Under the final regulations anyone covered by the "white collar" exemption must be paid a pre-determined weekly salary or fee of at least $455 ($30 higher than what was included in the proposed regulations). Docking of pay for partial day absences continues to be prohibited. However, disciplinary suspensions of a day or more are now permitted if the discipline is pursuant to a written policy that provides for such suspensions. In addition, the final regulations provide a new "safe harbor" for employers to correct inadvertent deductions from the salaries of exempt employees. This safe harbor is available if the employer has a written policy giving employees notice that they can advise the employer if their pay is improperly reduced, and if the employer then promptly corrects improper deductions.
1. Executive Exemption
The regulations provide that to qualify as an exempt executive, an employee will have to meet the salary test ($455 a week or more) and:
· The employee's "primary duty" is management of the enterprise or a customarily recognized department or subdivision; and the employee;
· "Customarily and regularly" directs the work of two or more full time employees or their equivalent; and the employee
· Has the authority to hire or fire other employees or the employee's suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given "particular weight."
"Primary duty" refers to the "principal, main, major, or most
important duty the employee performs" rather than the percentage of time
the employee spends performing that duty.
The focus of the analysis is on the character of the employee's job as a
whole. This means that managers who
frequently work shoulder-to-shoulder with staff (such as restaurant managers)
may be found to be exempt more often than before.
"Customarily and regularly" means a frequency
greater than occasional but less than constant i.e., recurrently. To determine whether an employee's
suggestions and recommendations are given "particular weight," you
should consider factors such as whether it is part of the employee's job duties
to make such suggestions and recommendations; the frequency with which such are
made or requested, and the frequency with which such are relied upon.
The final regulations also recognize an additional category of exempt executive
for persons who own at least a 20 percent equity interest in a business if they
also are actively engaged in managing the business, regardless of what they
earn weekly.
2. Administrative Exemption
The final
regulations provide that to qualify as an exempt administrative employee, an
employee must meet the new $455 or more weekly salary test and;
· Have as his/her "primary duty" the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
· The employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
"Primary duty" is defined as discussed above under the Executive
exemption. "Discretion and
independent judgment" involves the comparison and the evaluation of
possible courses of conduct, and acting or making a decision after the various
possibilities have been considered.
"Matters of significance" refers to the level of importance or
consequence of the work performed.
3. Professional Exemption
a. Learned Professionals
To qualify as an exempt learned
professional, an employee has to earn a salary of $455 or more weekly and have
as his/her "primary duty" the performance of work requiring knowledge
of an advanced type in a field of science or learning customarily acquired by a
prolonged course of specialized intellectual instruction.
b. Creative
Professionals
To qualify as an exempt creative professional, an employee must meet the $455 or greater weekly salary test and have as his/her primary duty work that requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
c. Teachers
Any employee
with a primary duty of teaching, tutoring, instructing or lecturing in the
activity of imparting knowledge and who is employed and engaged in this
activity as a teacher in an educational establishment by which the employee is
employed is an exempt "Professional" without regard to the $455
salary test.
4. Computer
Related Occupations
To qualify under the computer-related occupations exemptions a computer employee must:
· Meet the $455 or greater weekly salary test or be compensated on an hourly basis at a rate of not less than $27.63/hour; and
· Have as his/her primary duty:
(1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
(2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
(3) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
(4) A combination of the aforementioned duties, the performance of which requires the same level of skills.
5. Outside Sales Employees
These employees are not required to meet a salary requirement as part of the exemption. To qualify for the exemption these employees must have as their "primary duty" the task of making outside sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer, and the employee must be regularly engaged in performing this task away from the employer's business. What matters is whether sales are the "primary duty" as described above and whether they are made away from the employer's business, i.e., at the customer's place of business. Significantly, the limitation contained in prior regulations that not more than 20% of an outside sales employee's time be spent performing non-exempt duties had been eliminated from the new regulations, although it remains to be seen how the "primary duty" requirement will be interpreted in this context.
6. Exemption for Highly
Compensated Workers
A new exemption has been created for individuals who earn $100,000 or more annually (and also earn at least $455 on a weekly basis) and who (i) perform office or non-manual work as their primary duty, and (ii) who customarily and regularly perform at lest one of the exempt duties or responsibilities of an executive, administrative, or professional employee. The regulations discuss what payments are includable in salary, and how to prorate annual compensation for those who work for less than a year. The regulations allow an employer to make at the end of a year additional payments to employees to satisfy the salary requirement.
What To Do Before
Review jobs to determine if they are properly classified under the new regulations. Review your State Wage and Hour laws. Federal regulations set a floor. States can require employers to meet more rigorous standards. Employers should also devise policies alerting employees of their right to have deductions from their pay reviewed and corrected, so that the employer can address inadvertent improper deductions from the pay of exempt employees without worrying about the loss of the employee's exempt status. Finally, the question as to whether suspensions of less than a week will be imposed on exempt workers for misconduct should be answered in a written policy statement.
For further information, please contact Marty Klaper,
Rick Parker
or Tami
Earnhart.