• DOL's Final Regulations on White Collar Exemptions Under the FLSA
  • May 18, 2004 | Author: Schaun D. Henry
  • Law Firm: McNees Wallace & Nurick LLC - Harrisburg Office
  • On April 20, the United States Department of Labor (DOL) finally issued long awaited revisions to its fifty-year old exemptions from the Fair Labor Standards Act for white collar employees.

    The new regulations include numerous significant modifications to the scope of the white collar exemptions. These necessary changes clarify which employees are treated as exempt from the overtime requirements of the Fair Labor Standards Act. The regulations further serve to simplify application of the white collar exemptions. Now is the time for employers to review their payroll practices in light of the new regulations to ensure that there is no hidden exposure to overtime pay liability.

    Most significantly, the new regulations modify the salary requirements for executive, administrative, and professional employees. While the older minimum salary levels have been irrelevant for decades, the new rules establish a salary requirement of $455 per week for white collar employees. They also provide some clarification to the definition of "primary duty" for purposes of determining whether the exemptions are met. It states that primary duties are those of principal importance to the employer and, while the percentage of time spent performing exempt work can be a useful guide, even employees who do not spend more than 50 percent of their work day performing exempt duties may, nevertheless, have exempt work as their primary duty if other factors support such a conclusion. The new regulations also relax the prohibition against salary deductions for exempt employees. For example, salary deductions may now be made for unpaid disciplinary suspensions of one or more full days imposed as a result of infractions of workplace conduct rules. In addition, the new regulations establish that any highly compensated employee who earns at least $100,000 annually is exempt, so long as he or she performs any one or more of the exempt duties of an executive, administrative, or professional employee. This new language will serve to clarify that nearly any employee who earns over $100,000 per year will be exempt from the overtime requirements.

    The new regulations modify executive, administrative, and professional exemptions as follows:

    • For the executive exemption, the primary duty of managing an enterprise or a recognized department or subdivision remains, along with the requirement to direct the work of two or more employees. Here, as in many cases, the standard is two employees or their equivalent. Thus, a person who supervises two part-time employees does not qualify.
    • The administrative employee exemption requires the primary duty of performing office or non-manual work directly related to the management or general business operations of the employer. The requirement of the exercise of discretion and independent judgment remains, and is clarified as applying to employees who formulate, effect, interpret, or implement management policies or operating practices.
    • The professional exemption continues to require the performance of office or non-manual work entailing "knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction." While the proposed rule allowed the requisite level of knowledge to be "acquired by ultimate means, such as an equivalent combination of intellectual instruction and work experience," in the final rule "on the job training" is specifically excluded from qualification for the exemption. Once again, the fundamentals of this exemption have been retained, especially with respect to employees in medical related professions and those performing accounting functions.

    While not containing more sweeping changes, the new final rules represent a significant change in the previously codified criteria for classifying white collar employees. The final rules take effect August 18, 2004.