Cooper Walinski, LPA

The Fair Labor Standards Act has controlled payment of employee wages since it was enacted in 1938. Effective August 23, 2004, the Department of Labor (DOL) made changes to its regulations under the Fair Labor Standards Act concerning the “white collar” overtime exemptions. The new regulations affect which employees are exempt from overtime pay.

The prior regulations required that an employee must: (1) earn a fixed salary, (2) perform certain types of duties, and (3) earn a minimum salary. The new regulations affect each of these categories:

Fixed Salary. The DOL added a new exception to the salary basis rule, allowing an employer to deduct pay from exempt employees for one or more full day suspensions for discipline. A safe harbor provision also protects employers with a clearly communicated policy against improper pay deductions. With such a policy, the employer would only lose the exemption for willfully making improper pay deductions after receiving employee complaints.

Duties. The DOL has eliminated the “short” and “long” tests that were used, in favor of a single standard duties test for each exemption category. For executive employees, their primary duty must be managing the enterprise or a recognized department or subdivision., and they must regularly oversee at least 2 full-time employees. Executive employees who own a bona fide 20 percent equity interest in a business enterprise must be “actively engaged in management” to receive the exemption. For administrative employees, their primary duty must directly relate to management or general business operations and include “discretion and independent judgment in significant matters.” The new regulations contain a list of “factors” to consider when deciding if an employee exercises this level of discretion. For professional employees, their primary duty must be work (1) requiring advanced knowledge, in a field of science or learning, that is customarily acquired by a prolonged course of specialized intellectual instruction, or (2) requiring invention, imagination, originality or talent in a recognized artistic or creative field.

Minimum salary. The “salary tests” previously required an employee to earn either $155 or $170 per week, depending on the employee type, under the “long test,” or $250 per week under the “short test.” These have been eliminated in favor of a single “standard test” for executive, administrative, and professional employees that now requires a weekly salary of at least $455. The new regulations also add a new “highly compensated employee” provision that allows an exemption for employees paid more than $100,000 per year and who “customarily and regularly” perform some exempt function.

For the complete regulations, see 29 C.F.R. pt. 541.

DISCLAIMER: Cooper & Walinski publishes this bulletin to provide information about new developments in the labor and employment industry. It is not intended as legal advice, nor is it a solicitation for prospective clients. If you are seeking legal advice, you should consult an attorney who is familiar with your particular circumstances. Use of the information contained in this bulletin will not establish an attorney-client relationship. Such a relationship can only be established to the extent an attorney at Cooper & Walinski expressly agrees to undertake the relationship. All rights reserved.