Last spring, after much anticipation and considerable debate by both
worker advocates and the business community, the U.S. Department of Labor
published final regulations updating and modifying the federal requirements
under the Fair Labor Standards Act for overtime pay. 29 C.F.R. §
541. The changes also reformulate the tests for the “white collar”
exemptions from the overtime requirements.
Although the Fair Labor Standards Act has been in place since 1938, it
has proven to be one of the most difficult laws for employers to understand
and apply correctly in their workplaces. For example, a common misconception
is that by merely paying an employee’s wages on a salary basis
rather than a per-hour rate, the worker automatically becomes “exempt”
and the employer is off the hook for paying overtime for hours worked
in excess of 40 per week. The new regulations retain the existing principle
that only those employees who perform certain types of job duties, in
addition to receiving salary-based wages, can qualify for an exemption
from overtime. But the regulations also attempt to simplify the criteria
as well as update the salary thresholds.
Overview of Changes
First, the new regulations eliminate the prior “long” and
“short” tests for determining if a worker qualifies for the
Executive, Administrative, and Professional exemptions. Now there is
a single test for each exemption that is based on the “primary
duties” of the position rather than the percentage of time spent
on exempt versus non-exempt duties. Job titles are not determinative,
no matter how impressive the title may be: Instead the focus is on job
duties.
Second, the minimum salary that must be paid to categorize
a worker as “exempt” is increased to $455/week ($23,660/year).
Employees paid less than this are guaranteed overtime regardless of their
job duties or job titles.
Third, the regulations create a new exemption for “Highly
Paid” employees, who are employees performing office or non-manual
work and paid total annual compensation of $100,000 or more (which must
include at least $455 per week paid on a salary or fee basis). These
employees may be treated as exempt from the FLSA if they customarily
and regularly perform at least one of the duties of an exempt Executive,
Administrative or Professional employee identified in the standard tests
for exemption, even if such duties are not the person’s “primary
duties”. Still, the employee’s duties must be primarily non-manual.
Thus, no employee performing non-management or production line work will
qualify no matter how highly compensated.
Fourth, the regulations now make clear that certain categories
of workers, by definition, cannot be treated as exempt from the overtime
pay requirements. These include, “manual laborers or other ‘blue
collar’ workers who perform work involving repetitive operations
with their hands, physical skill and energy.” Additionally, many
public service employees cannot be classified as “exempt”:
Police officers, detectives, deputy sheriffs, state troopers, highway
patrol officers, park rangers, fire fighters, paramedics, EMT/ ambulance
personnel, investigators, inspectors, correctional officers, regardless
of rank or pay level (including probation/parole employees).
Fifth, the recent regulatory changes provide some new
limits on liability for employers who improperly dock pay from the salary
of an exempt employee. In the past, such practices have often had the
unforeseen and unintended result of causing the worker (and sometime
an entire group of workers) to be deemed “non-exempt” thereby
exposing the employer to claims for overtime pay. Now, full-day pay deductions
for violations of written conduct rules can be made without causing the
worker to lose “exempt” status. However, pay deductions for
attendance or productivity reasons are still not permitted in the case
of an “exempt” worker. Nor are part-day pay deductions permissible,
except where required to comply with the Family and Medical Leave Act.
The regulations also provide limits on the extent of an employer’s
liability should a deduction be found improper. For example, under the
prior regulations, a policy or practice involving improper deductions
could result in company-wide loss of exempt status to all employees in
the job classification. Now, any loss of exempt status would be limited
to only employees in the same job classification and working for the
same manager who made the improper deduction.
The regulations stress that the best protection for an
employer is to promulgate a policy prohibiting improper deductions. The
policy should be clearly communicated to employees, which means that
it should be written and distributed to the workforce, and managers should
be trained to implement it. The policy should include a complaint procedure,
a mechanism to reimburse employees for any improper deductions, and a
good faith commitment to comply in the future should a violation be found.
to be continued next month.
You may mail
correspondence to: P.
O. Box 204042 • Austin, Texas 78720
