The Federal FairPay Overtime Initiative

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The Federal FairPay Overtime Initiative

• The New Fair Labor Standards Act Overtime
  Regulations

August 23, 2004 E. Sean Arthur Best Best
Krieger LLP 402 W. Broadway, 13th Floor, San
Diego, CA 92101 Sean.Arthur_at_bbklaw.com
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FLSA vs. State Wage Orders
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FLSA vs. State Wage Orders
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Exempt vs. Nonexempt

• Three Part Test
• Salary Level Test
• Salary Basis Test
• Duties Test
• The analysis under federal and state law was
  virtually identical until the new federal
  regulations did the following
• Raised the minimum salary level
• Clarified executive, administrative and
  professional duties
• Added additional, very specific exemptions

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The Salary Level Test
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The Salary Basis Test

• The Salary Basis Test is largely unchanged
• Changes have been made to permissible deductions
  (below)
• The employee must be paid
• A predetermined amount
• On a weekly or less frequent basis
• With no reductions for quantity or quality of
  work
• Full pay for any week that work is performed
• Need not pay for a week when no work is
  performed

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Deductions

• The new permissible deductions give the employer
  more flexibility without the employee losing
  exempt status
• Deductions are now permitted for
• One or more days for personal reasons (other than
  illness or disability)
• One or more days for illness or disability (if
  deductions made pursuant to plan of wage
  replacement for the absences)
• To offset amounts received for jury fees, witness
  fees or military pay
• Suspensions imposed for violations of safety
  rules of major significance
• Suspensions imposed for violations of workplace
  conduct rules
• Unpaid FMLA leave

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The Duties Test

• The Categories under the Duties Test have been
  clarified by the new FLSA regs
• Both federal and state law recognize the standard
  white-collar exemptions
• Executive
• Administrative
• Learned Professional

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The Duties Test

• The Test looks to the employees primary duty
• Primary duty is defined in the new regs as
  the principal, main, major or most important
  duty that the employee performs
• Factors
• Relative importance of the duty
• Time spent performing the duty
• Freedom from supervision
• Relationship between employees salary and wages
  paid to other employees for the same type of work

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The Duties Test

• The most significant change (and departure from
  state law)
• FLSA The Duties Test may be satisfied even if
  the employee performs the exempt, primary duty
  less than 50 of the time
• State law The employee must perform exempt,
  primary duties greater than 50 of the time

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Computer Employee Exemption

• The exemption engages in similar analysis as the
  white-collar exemptions
• The employee must earn in excess of 455 per week
  or 27.63 per hour
• The employee need not exercise discretion or
  independent judgment
• The employees primary duties must consist of
• The application of systems analysis techniques
• The design and development of computer systems
  and programs

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The New Highly Compensated Employees Exemption

• Entirely new exemption under the FLSA
• Recognizes that a high level of compensation is a
  strong indicator of exempt status
• Requirements for the exemption
• Total annual compensation greater than 100,000
• Primary duties include office or non-manual
  work
• Employee customarily and regularly performs one
  or more of the exempt duties under the
  white-collar exemptions
• Customarily and regularly means greater than
  occasional but may be less than constant

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The New First Responder Exemption

• This exemption was created due to concern that
  police officers and fire fighters would be exempt
  under the new regs
• Applies to 17 enumerated safety positions
  including fire personnel, police officers,
  correctional officers, detectives, parole and
  probation officers and paramedics
• Applies to employees whose primary duties are
  extinguishing fires, rescuing accident victims,
  preventing or detecting crimes or conducting
  investigations

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The Verdict

• Significantly reduces administrative costs since
  higher salary level eliminates need to engage in
  Duties Test analysis
• Decreases risk associated with erroneous
  classifications since criteria for the
  white-collar exemptions are updated and clarified
• Will have limited application to private
  employers since highly compensated employees
  exemption will not apply and employees must still
  be engaged in exempt duties more than 50 of the
  time to qualify for white-collar exemptions