• White Collar Exemptions Get a Long-Awaited Overhaul
  • May 26, 2004
  • Law Firm: Dinsmore & Shohl LLP - Cincinnati Office
  • Effective August 23, 2004, employers will be required to comply with revised regulations defining the "white collar" exemptions under the FLSA. Under the revisions, an estimated 1.3 million new workers will be entitled to overtime based solely on the increased minimum salary level for an employee to be considered exempt. Important revisions have been made to the executive exemption, and the regulations now provide specific examples of administrative and professional employees.

    On April 20, 2004, the U.S. Department of Labor released changes to the Fair Labor Standards Act regulations that establish who is entitled to overtime under the FLSA. These changes take effect on August 23, 2004.

    Under the FLSA, any employee employed in a bona fide executive, administrative, or professional capacity, or in the capacity of an outside sales employee, or in certain skilled computer occupations is exempt from overtime. These so-called white collar exemptions are defined in the regulations to require the employee to be paid a certain threshold salary and to perform certain duties. The official text of the FLSA regulations dealing with the white collar exemptions appears at 29 C.F.R. Section 541.

    Below is a summary of certain key changes:

    Salary Thresholds

    • Employees who are paid less than $455 per week ($23,660 annually) are guaranteed overtime. In other words, the white collar exemptions do not apply unless the employee's salary is at least $23,600 a year. This is an increase from $8,060 a year, which was the minimum salary level established in 1975.
    • Employees who are paid more than $100,000 a year will be exempt from overtime as long as they perform at least one duty of an exempt administrative, executive, or professional employee.

    Duties Tests

    The revised regulations eliminate the long and short tests, creating standard duties tests for employees earning at least $23,600 and less than $100,000. Many components of the duties tests remain the same, but a few changes should be noted.

    To qualify as an exempt executive, the employee must have the authority to hire or fire other employees or must make recommendations as to hiring, firing, advancement, promotion or any other change of status which are given "particular weight." The regulations list several factors to determine whether the employee's suggestions and recommendations are "given particular weight."

    The standard duties test for administrative employees has not changed much. However, the regulations specifically identify some examples of employees who generally meet the duties requirements for the administrative exemption. The regulations include the following examples:

    • insurance claims adjusters;
    • employees in the financial services industry;
    • an employee who leads a team of other employees assigned to complete major projects for the employer, even if the employee does not have direct supervisory responsibility over the other employees on the team;
    • an executive assistant or administrative assistant to a business owner or senior executive of a large business if the employee has been delegated authority regarding matters of significance;
    • human resources managers who formulate, interpret or implement employment policies;
    • purchasing agents with authority to bind the company on significant purchases.

    With respect to professionals, the revised duties test is similar to the current short test. Several particular jobs are addressed. One revision worth noting is that licensed practical nurses and other similar health care employees generally do not qualify as exempt professionals. Registered nurses generally do meet the duties test for the professional exemption.

    Scope of the Exemptions

    Beyond clarifying when the exemptions apply, the revised regulations explicitly provide for categories of employees to which the exemptions do not apply. The white collar exemptions do not apply to the following:

    • manual laborers or other "blue collar" workers who perform work involving repetitive operations with their hands, physical skill and energy;
    • police officers, fire fighters, paramedics and similar public safety employees.

    The Impact

    There is much debate about the effect the revisions will have, both on employees and employers. Based on the DOL's estimates, employers will face additional costs including up to $375 million in additional annual payroll and $739 million in one-time implementation costs. On the other hand, the DOL claims that updating and clarifying the rules will reduce violations and save businesses at least an additional $252.2 million every year.