Fair Labor Standards Act Training, Part 4: Exempt Employees December 2016

Introduction The Fair Labor Standards Act (FLSA) was passed in 1938. It sets standards for child labor, minimum wage and overtime pay. Since the passage of the Equal Pay Act in 1963 as part of the FLSA, the act also prohibits gender- based wage discrimination. It is essential for you, as supervisors, in addition to the human resource staff, to know how to comply with the FLSA and with state child labor and wage and hour laws. This training will provide you with knowledge of the FLSA to ensure the full and correct compliance with this important labor law. Note to presenter: The sessions are intended for presentation to supervisors and other individuals who manage employees. They are designed to be presented by an individual who has comprehensive knowledge of the FLSA and the employer’s state child labor and wage and hour laws. These sample presentations must be customized to match state laws and the employer’s own policies and practices.

Introduction (cont.) Our training on the FLSA has been structured to be given in three sessions organized into five parts. This first session (Parts 1-3) covered an introduction to the act and its penalties for violations and statute of limitation, child labor regulations, and the Equal Pay Act. This second session (Part 4) covers exempt employees. The third session (Part 5) covers nonexempt employees.

Agenda Definition of exempt and nonexempt employees The exempt requirement of being paid on a salary basis Permitted and prohibited deductions from salary Categories of exemptions from FLSA minimum wage and overtime pay requirements: Executive Administrative Professional Computer-related Outside sales Highly compensated employee

Definitions of Exempt & Nonexempt Employees Exempt employees: Employees who meet one of the FLSA exemption tests and are not entitled to overtime. Nonexempt employees: Employees who do not meet any of the FLSA exemption tests and are covered by wage and hour laws regarding minimum wage, overtime pay and hours worked.

The Exempt Requirement of Being Paid on a Salary Basis To be paid on a salary basis means that the employee “regularly receives a predetermined amount constituting all or part of the employee’s salary, which amount is not subject to reduction because of variations in the quality or quantity of work performed.”

The Exempt Requirement of Being Paid on a Salary Basis (cont.) In other words, exempt employees must receive their full salary for any week in which they perform any work without regard to the number of days worked or how well the job was performed with the following main exceptions: Hourly paid computer professional employees who make at least $27.63 per hour. Teachers, doctors, lawyers or individuals who meet the outside sales exemption.

Questions? Comments?

Permitted Deductions from Salary Deductions from pay are allowed: In the first and last weeks of employment. In full day increments when an employee is absent for personal reasons. In full day increments when an employee is absent due to sickness or disability, but only when a sick or paid-time-off policy is offered to exempt employees and the employee has exhausted all his or her available time or is not yet eligible for time under the plan.

Permitted Deductions from Salary (cont.) Deductions from pay are allowed (cont.): In full or partial day increments for any unpaid leave taken under the Family and Medical Leave Act (FMLA). For major safety rule infraction penalties. In full day increments only for suspensions due to serious misconduct that violates a written company policy. Examples may include sexual harassment, workplace violence or use of drugs or alcohol. (Suspensions cannot be implemented for any attendance or performance issues.)

Prohibited Deductions from Salary In general, an employer cannot deduct in partial days (exceptions being the first and last weeks of employment and FMLA leave). Deductions cannot be made for jury or witness duty, except for a deduction for fees received, unless the employee performs no work the entire workweek. Employers cannot dock pay for business closures or lack or work (holidays, days when employees are sent home early due to lack of work or due to the organization closing because of the weather).

Questions? Comments?

Categories of Exemptions from FLSA Minimum Wage and Overtime Pay Requirements Executive Administrative Professional Computer-related Outside sales Highly compensated employee

Executive Exemption Must be paid at least the established minimum salary. Primarily manages the company or a customarily recognized department of the company. Customarily and regularly directs the work of two or more full-time employees or equivalents. Has the authority to hire or fire other employees or make recommendations that carry weight on significant employment decisions.

Administrative Exemption Must be paid at least the established minimum salary. Primarily performs office or nonmanual work directly related to the management or general business operations of the company. Engages in work requiring the exercise of discretion and independent judgment with respect to matters of significance.

Professional (Learned and Creative) Exemption Learned professional: Must be paid at least the established minimum salary.* Primarily performs work that requires advanced knowledge and that is primarily intellectual in character and includes the exercise of discretion and independent judgment. Must have advanced knowledge in a field of science or learning. Must have acquired the advanced knowledge in a prolonged course of specialized intellectual instruction (appropriate academic degree or combination of degree and experience). Examples: accountant, nurse, engineer. *Teachers, licensed/certified practitioners of law and medicine, medical interns and residents do not have to be paid on a salary basis.

Professional (Learned and Creative) Exemption (cont.) Creative professional: Must be paid at least the established minimum salary. Primarily performs work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual or physical work. Recognized fields of creative professionals include acting, music, writing and graphic arts.

Computer-Related Exemption Must be paid at least the established minimum salary or at least $27.63 per hour. (Does not have to be paid on a salary basis. If paid hourly, must be paid at least straight time for all hours worked, even hours over 40 in a workweek.) Primary duty consists of one of the following: The application of system-analyst techniques and procedures, including consulting with users to determine hardware, software or systems specifications. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs.

Computer-Related Exemption (cont.) The design, documentation, testing, creation or modification of computer programs related to machine-operating systems. A combination of these duties that requires the same level of skills. Examples: network analyst, developer, software engineer.

Outside Sales Exemption Does not have to be paid on a salary basis. (Can be paid commission only.) Primarily makes sales or obtains orders for contracts for services or for the use of facilities for which consideration is paid by a client or customer. Is customarily and regularly engaged away from the employer’s place of business.

Highly Compensated Exemption Must be paid a higher salary, established by the U.S. Department of Labor, which includes at least the regular salary minimum paid on a weekly basis. This annual salary for the highly compensated exemption may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation. Customarily and regularly performs at least one of the exempt duties or responsibilities of the executive, administrative or professional exemption. Primarily performs nonmanual office work.

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Summary Exempt employees are employees who meet one of the FLSA exemption tests, which generally includes both a job duties test and a salary minimum requirement, and are not entitled to overtime. Nonexempt employees are employees who do not meet any of the FLSA exemption tests and are covered by wage and hour laws regarding minimum wage, overtime pay and hours worked.

Summary (cont.) Being paid on a salary basis means that the employee “regularly receives a predetermined amount constituting all or part of the employee’s salary, which amount is not subject to reduction because of variations in the quality or quantity of work performed.” Limited exceptions pertain to doctors, lawyers, teachers, individuals who meet the outside sales exemption, and individuals who meet the computer professional exemption and are paid hourly.

Summary (cont.) An employee who meets the salary and job duties criteria may be exempt from the FLSA minimum wage and overtime pay requirements under the exemptions for the following categories: Executive. Administrative. Professional. Computer-related. Outside sales. Highly compensated employee.

Questions? Comments?

Training Evaluation Please be sure to complete the evaluation sheet you received with your handouts. I thank you for your interest and attention!