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May 2004 - NEW OVERTIME REQUIREMENTS UNDER THE FAIR LABOR STANDARDS ACT |
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I. Introduction On April 20, 2004, the Department of Labor (“DOL”) issued new regulations regarding the overtime requirements of the Fair Labor Standards Act (“FLSA”). The DOL estimates that 1.3 million workers who were not entitled to overtime in the past will be entitled to overtime under these new regulations. In addition, 6.7 million workers will have their overtime rights strengthened and few, if any, employees will lose their right to overtime. II. Compliance Deadline Employers must be in compliance with the new FLSA rules by August 23, 2004. III. Highlights A. General Regulations Under the FLSA, covered employers are generally required to pay overtime at 1.5 times their regular rate of pay for any hours worked over 40 per week. The new FLSA rules provides an exemption for any employee employed in one of the following classifications:
These rules make it clear that job titles are insufficient to establish the exempt status of an employee. Rather, the critical analysis is whether an employee's salary and duties meet the requirements of the exemption tests for the 5 categories of employees listed above. It is important to note that these regulations provide minimum standards of protections for employees. States may have greater employee protections. When state laws differ from the FLSA, an employer must comply with the standard most protective to employees. Thus, any applicable collective bargaining agreements and local wage and hour laws still apply. Nothing in the revised FLSA regulations relieves an employer from these obligations. A. Executive Employees Under the new regulations, an employee qualifies for the executive exemption if: (1) the employee earns a salary of not less that $455 per week; (2) the employee’s primary duty is management of the business or management of a customarily recognized department or subdivision of the business; (3) the employee customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and (4) the employee has the authority to hire or fire other employees or can make suggestions or recommendations as to the employment actions concerning other employees that are given particular weight. B. Administrative Employees An employee qualifies for the administrative exemption if: (1) the employee earns a salary of not less than $455 per week; (2) the employee’s 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 employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. In order for an employee's primary duty to be "directly related to the management or general business operations," the employee must perform work directly related to assisting with the running or servicing of the business. Specifically excluded from the administrative exemption are employees who apply well-established techniques, procedures, or specific standards described in manuals or other sources within closely prescribed limits, including performing clerical or secretarial work, recording or tabulating data, or performing other mechanical, repetitive, recurrent or routine work. C. Professional Employees An employee qualifies for the professional employees exemption if (1) the employee earns a salary of not less than $455 per week and (2) the employee’s primary duty is the performance of work: (a) requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or (b) requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. The regulations classify these employees as learned professionals and creative professionals. The “learned professional” exemption extends to professions such as law, medicine and accounting. The “creative professional” exemption covers employees in fields such as music, writing and acting. Note: The minimum salary requirement does not apply to practicing lawyers or doctors. D. Computer Employees An employee qualifies for the computer employee exemption if (1) the employee earns a salary of not less than $455 per week or is compensated on an hourly basis at a rate not less than $27.63 per hour, and (2) the employee’s primary duties consist of: (a) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system function specifications; (b) 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; (c) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or (d) any combination of the above duties, the performance of which requires the same level of skills. The computer employee exemption does not apply to employees engaged in the manufacture or repair of computer hardware and related equipment or employees who are not primarily engaged in computer systems analysis and programming, regardless of whether their work is dependent on or facilitated by the use of computers or computer software program. In addition, a computer employee, whether or not covered by this exemption, may also have executive or administrative duties that independently qualify the employee for one of those two exemptions. E. Outside Sales Employees An employee qualifies for this exemption if the employee’s primary duty consists of work performed incidental to and in conjunction with the employee's own outside sales or solicitations, including incidental deliveries and collections. Other work that furthers the employee's sales efforts should be regarded as exempt outside sales work, including writing sales reports, updating or revising the employee's sales or display catalogue, planning itineraries, and attending sales conferences. The minimum salary requirements do not apply to outside sales employees. F. Salary Requirements As indicated in each exemption discussion above, exempt employees must meet certain salary requirements. To be exempt under the new regulations, an employee must be compensated at a salary level of at least $455 per week, which is equivalent to $23,660 annually. Thus, workers earning less than $455 per week are guaranteed overtime compensation. In addition, the minimum salary level must be paid on a salary basis. G. Definitions and Miscellaneous Provisions To qualify for an exemption under the new regulations, an employee's "primary duty" is the principal or most important duty of the employee. The test to determine the primary duty is based on a determination of the employee's job as a whole and consideration of factors such as the relative importance of the exempt duties as compared to any nonexempt duties, the amount of time spent performing exempt work, freedom from direct supervision, and the relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee. Of significance, the regulations specify that the amount of time spent performing exempt work provides guidance, but is not determinative. Work that is "directly and closely related" to the performance of exempt work is considered exempt work under the new regulations. Furthermore, the regulations recognize that an employee may perform a combination of exempt duties under multiple exemptions. IV. Recommendations We recommend that within the 120-day compliance period, you carefully review your policies and procedures, exempt and non-exempt employee classification system, employee salary levels and responsibilities. Due to the controversy surrounding these standards, you should also continue to monitor legislative activity for new developments. Popovits & Robinson, P.C. is experienced in assisting clients with FLSA and state wage and hour regulations and requirements. Our attorneys are available to assist you with FLSA compliance and other labor and employment issues facing your organization. |