Fair Pay Initiative Final FLSA White Collar Exemption Regulations

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Fair Pay InitiativeFinal FLSA White
CollarExemption Regulations
CESSE FA Committee and CESSE CS/CQI
Committee Spring 2004 Meeting April 23, 2004

• Suzanne A. Walker, Esquire
• Muldoon Murphy Faucette Aguggia LLP
• www.muldoonmurphy.com

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Introduction

• Fair Labor Standards Act (FLSA) is a federal
  statute governing compensation (including
  overtime) for full and part time employees
• Persons employed in bona fide executive,
  administrative, professional or outside sales
  capacities are exempt from the wage requirements
  of the FLSA (white collar exemptions)

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New Regulations

• On April 20, 2004, the Department of Labor
  (DOL) issued new rules regarding the white
  collar exemptions
• Regulations referred to as the Fair Pay
  Initiative

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Fair Pay Initiative

• Revised tests for determining whether an employee
  is covered under the white collar exemptions
• Raised weekly salary level for exempt employees
  to 455
• Streamlined job duties tests

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The Statutory Definition of the White Collar
Exemptions Unchanged

• Section 13(a)(1) of the FLSA provides an
  exemption from both minimum wage and overtime pay
  for employees who are employed in a bona fide
• Executive
• Administrative
• Professional or
• Outside sales capacity

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Tests for Determining Whether the Exemption
Applies

• The Salary Level Test
• The Salary Basis Test
• The Job Duties Test

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Salary Level Test

• The minimum salary level has been increased to
  455 per week
• 455 per week must be guaranteed, regardless of
  the number of hours, days or shifts worked
• Requirement will be met if the employee is
  compensated biweekly on a salary basis of 910,
  semimonthly on a salary basis of 985.83 or
  monthly on a salary basis of 1,971.66
• Computer employee exception (27.63 per hour)

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Highly Compensated Employee Test(New Test)

• Employees with total compensation of at least
  100,000 per year (i.e., 52-week period) will be
  considered exempt if
• They make at least 455 per week (23,660/year)
• They perform office or non-manual work
• They customarily and regularly perform any one
  or more of the exempt duties of an executive,
  administrative, or professional employee

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Highly Compensated Employee Test (contd)

• Total Compensation (100,000) includes
• Commissions
• Nondiscretionary bonuses
• Other nondiscretionary compensation earned during
  a 52-week period
• Total Compensation does not include
• Credit for board, lodging or other facilities
• Payments for medical or life insurance
• Contributions to retirement plans or fringe
  benefits

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Highly Compensated Employee Test(contd)

• Highly compensated employees must customarily and
  regularly perform exempt duties. Such duties
  must be performed
• With a frequency that must be greater than
  occasional, but which may be less than constant
• Normally and recurrently every workweek
• Does not include isolated or one-time tasks

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Salary Basis Test(Unchanged)

• An employee must regularly receive a
  predetermined amount of compensation each pay
  period (on a weekly or less frequent basis)
• The compensation cannot be reduced because of
  variations in the quality or quantity of the work
  performed
• The employee must be paid the full salary for any
  week in which the employee performs any work

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Permitted Deductions Salary Basis Test

• Seven exceptions to the no-pay docking rule
• Absence from work for one or more full days for
  personal reasons, other than sickness or
  disability
• Absence from work for one or more full days due
  to sickness or disability if the deductions are
  made under a bona fide plan, policy or practice
  of providing wage replacement benefits for these
  types of absences
• To offset any amounts received as payment for
  jury fees, witness fees, or military pay
• Penalties imposed in good faith for violating
  safety rules of major significance

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Permitted Deductions -- Salary Basis Test(contd)

• Unpaid disciplinary suspension of one or more
  full days imposed in good faith for violations or
  workplace conduct rules
• Proportionate part of an employees full salary
  may be paid for time actually worked in the first
  and last weeks of employment
• Unpaid leave taken pursuant to the Family and
  Medical Leave Act

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Improper Deductions Salary Basis Test

• Examples of improper deductions include
• Deduction for a partial-day absence to attend a
  parent-teacher conference
• Deduction of a day of pay because the employer
  was closed due to inclement weather or a Company
  holiday
• Deductions of three days of pay because the
  employee was absent from work for jury duty,
  rather than merely offsetting any amount as
  payment for the jury duty

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Effect of Improper Deductions Salary Basis Test

• Isolated or inadvertent improper deductions will
  not result in the loss of exempt status if the
  employer reimburses the employee
• Actual Practice of improper deductions will
  result in the loss of the exemption.

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Examples of Actual Practice

• Factors that may suggest an actual practice of
  improper salary deductions include
• The number of improper deductions, as compared to
  the number of employee infractions warranting
  discipline
• The time period during which the employer made
  improper deductions
• The number and geographic location of both the
  employees whose salaries were improperly reduced
  and the managers responsible
• Whether the employer has a clearly communicated
  policy permitting or prohibiting improper
  deductions

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Improper Deduction Safe Harbor

• The exemption will not be lost if the employer
• Has a clearly communicated policy prohibiting
  improper deductions, which includes a complaint
  mechanism
• Reimburses employees for improper deductions and
• Makes a good faith commitment to comply in the
  future

This safe harbor is not available if the
employer willfully violates the policy by
continuing to make improper deductions after
receiving employee complaints
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Executive Duties Test

• An employee meets the duties test for the
  executive exemption if
• His or her primary duty is management of the
  enterprise or of a customarily recognized
  department or subdivision
• He or she customarily and regularly directs the
  work of two or more employees and
• He or she has the authority to hire or fire other
  employees or if suggestions for hiring and firing
  are given particular weight.

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Primary Duty

• Factors to consider when determining an
  employees primary duty include, but are not
  limited to
• Relative importance of the exempt duties
• Amount of time spent performing exempt work
• Relative freedom from direct supervision
• Relationship between the employees salary and
  the wages paid to other employees for the same
  kind of nonexempt work
• Employees who spend more than 50 of their time
  performing exempt work will generally satisfy the
  primary duty requirement

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Management

• Interviewing, selecting and training employees
• Setting and adjusting pay and work hours
• Maintaining production or sales records
• Appraising employee productivity and efficiency
• Handling employee complaints and grievances
• Disciplining employees
• Planning and apportioning work among employees

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What is a Customarily RecognizedDepartment or
Subdivision?

• A customarily recognized department or
  subdivision must have a permanent status and
  continuing function
• The department or subdivision need not be
  physically within the employers establishment,
  and may move from place to place
• The employee in charge of each branch
  establishment is in charge of a recognized
  subdivision

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What Qualifies as Customarily and Regularly?

• A frequency that must be greater than occasional,
  but which, may be less than constant
• Includes work normally and recurrently performed
  every work week

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Two or More Employees

• The phrase two or more employees means two
  full-time employees or their equivalent (e.g.,
  one full-time employee and two half-time
  employees is the equivalent of two full-time
  employees)
• Supervision of the same employees can be
  distributed among two or more exempt executives,
  but the hours worked by an employee cannot be
  credited more than once
• Shared responsibility for supervision of same two
  employees in same department does not satisfy the
  requirement

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Input Given Particular Weight

• Making suggestions and recommendations part of
  employees job duties
• Frequency with which suggestions and
  recommendations are made, requested and relied
  upon in decision making
• Suggestions and recommendations must pertain to
  employees whom the executive customarily and
  regularly directs

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Administrative Duties Test

• An employee will meet the duties test for the
  administrative exemption if the employees
• Primary duty is the performance of office or
  non-manual work directly related to the
  management or general business operations of the
  employer or the employers customers and
• Primary duty includes the exercise of discretion
  and independent judgment with respect to matters
  of significance

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Examples of Managementor General Business
Operations

• Work must be directly related to assisting the
  running or servicing of the business (e.g., tax
  experts, financial consultants)
• Exempt duties do not include working on a
  manufacturing production line or selling a
  product in a retail or service establishment

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How to Determine the Existence of Discretion and
Independent Judgment

• Does the employee have authority to formulate,
  affect, interpret, or implement management
  policies or operating practices?
• Does the employee carry out major assignments
  relating to the operation of the business?
• Does the employee perform work that affects
  business operations to a substantial degree?
• Does the employee have authority to commit the
  employer in matters that have significant
  financial impact?
• Does the employee have authority to waive or
  deviate from established policies and procedures
  without prior approval?

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Discretion and Independent JudgmentDoes Not
Include

• Applying well-established techniques, procedures
  or specific standards described in manuals or
  other sources
• Clerical or secretarial work
• Recording or tabulating data
• Performing mechanical, repetitive, recurrent or
  routine work

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Types of Positions That May Be Exempt Under the
Administrative Exemption

• Insurance Claim Adjusters
• Financial Services
• Human Resources
• Other Exempt Positions
• An employee who leads a team of other employees
  assigned to complete positions
• Executive assistant or administrative assistant
  to a business owner or a senior executive of a
  large business who has delegated authority
  regarding matters of significance
• Management consultants who study the operations
  of a business and propose changes in organization

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Professional Duties Test(Learned Professional)

• The employee performs work requiring advanced
  knowledge
• The advanced knowledge is in a field of science
  or learning and
• The advanced knowledge must be customarily
  acquired by a prolonged course of specialized
  intellectual instruction

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Work Requiring Advanced Knowledge

• Predominately intellectual in character
• Advanced knowledge is generally used to analyze,
  interpret and make deductions from varying facts
  or circumstances

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Field of Science or Learning

• Occupations with recognized professional status,
  as distinguished from the mechanical arts or
  skilled trades
• Law
• Medicine
• Accounting
• Engineering
• Architecture
• Teaching

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Customarily AcquiredProlonged Course of
SpecializedIntellectual Instruction

• Specialized academic training is a prerequisite
  for entering the profession. These professions
  include
• Dental hygienist
• Nurse
• Physicians assistant
• Accountant
• Chef
• Funeral director
• Customarily acquired allows for combination of
  work experience and intellectual instruction

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Customarily AcquiredProlonged Course of
SpecializedIntellectual Instruction(contd)

• The exemption is not available for jobs that may
  customarily be performed with only general
  knowledge
• Paralegal
• Cook
• Bookkeeper
• Practical nurse

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Effective Date of New Regulations

• Regulations will become effective 120 days from
  publication in the Federal Register