On August 21, 2004, the final rules modifying the Federal Fair Labor and Standards Act (“FLSA”) will become effective. How these rules will affect Employers throughout the Pacific Northwest will depend on the type of business in which the Employer is engaged and the specific states’ future regulatory decisions to adopt the federal changes.
The FLSA embodies the federal requirements covered Employers must meet when paying overtime and minimum wages to their employees. Violating the FLSA can result in costly lawsuits that include payment of overtime, liquidated damages and, in certain circumstances, the employee’s attorney’s fees. Any Employer who has responded to a claim for unpaid wages by either the federal government or a private attorney knows that such suits are costly to defend. Part of the problem has been the difficulty in interpreting significantly complex and outdated regulations that govern specific employees who are exempt from the payment of overtime. The United States Department of Labor (“DOL”), in an attempt to clarify and modernize the FLSA regulations, recently completed an overhaul of these “white collar” exemptions.
White Collar Exemptions
The “white collar” exemptions are employees who fall into the following categories:
- Executive
- Administrative
- Outside Sales
- Computer Employee
Generally, such employees are managerial staff or staff who works directly with management in the production of the Employer’s business. If the employee is exempt, the Employer need not pay the employee overtime when the employee works in excess of 40 hours during a work week. To qualify for the revised exemptions, however, the individual employee must meet the “salary basis test.” This is probably the most significant change in the DOL’s new rules.*
Salary Basis Test
To meet the salary basis test, the employee must be paid at least $455 per week ($23,660 annually). Furthermore, the pay may not be reduced, absent specific exceptions, because of variations in the quality or quantity of work. If the Employer violates this test, whether the employee meets the requirements for the applicable “white collar” exemption will not be relevant. The Employer will violate the FLSA.
* Prior to August 21, 2004, additional articles will be published for each specific white collar exemption. Employers seeking additional information regarding the current FLSA changes can log onto the DOL website at www.dol.gov.esa.
Highly Compensated Employee Exemptions
In addition to increasing the minimum compensation under the salary basis test, the DOL created a new white collar exemption identified as a “highly compensated employee” (“HCE”). To qualify under the HCE exemption, the employee must earn a total compensation equal to $100,000 annually. The $100K annual compensation must include a salary that equals at least $455 per week paid in weekly or less frequent intervals. The balance can be made up of nondiscretionary bonuses, other nondiscretionary compensation or commissions.
The total compensation may not include meals and lodging, payments for medial or life insurance, or contributions to retirement plans or other fringe benefits. In addition to the total compensation requirement, the employee’s duties must be primarily office or non-manual work and the employee must regularly and customarily perform one of the specific executive, administrative or professional employee duties.
Further Tests and State Requirements
In addition to the above identified changes, the new regulations attempt to clarify the duties test, remove certain exemptions such as the “sole charge” exemption, and bring the FLSA into the 21st Century. Employers, however, should not get too excited about the changes if the states in which they employ their work force fail to follow suit. Specifically, the rule requires Employers to comply with state laws that provide additional protections above those required by the FLSA. As a result, Employers must not only analyze how the new regulations affect their employment practices under the FLSA, but they must also analyze each state’s wage and hour laws to determine compliance. An exemption under the new FLSA may not equate to an exemption under the current state law.
Finally, the DOL attempts to go out of its way to confirm that it has not abandoned the workers in order to appease business interests trying to navigate their way through the maze of complex and often contradictory employment laws. In the preamble to the final rule, the DOL writes that its intent is to “restore the overtime protections intended by the FLSA.” Even if such language is only an attempt to appease labor organizations involved in the rule-making process, courts will look to that language when interpreting the new FLSA regulations as part of lawsuits brought by employees deemed exempt from the payment of overtime.
