The US Department of Labor’s Fair Labor Standards Act (FLSA)

Fair Labor Standards Act (FLSA) A Department of Labor Regulation Compliance is mandatory Non-compliance exposes the employer to substantial financial risk

Immediate Importance New FLSA regulations have been issued which will impact many employers Compliance date = August 23, 2004 The new regulations will make it more difficult to qualify for exempt status (exempt from the overtime provisions) by: Requiring higher minimum salary Providing narrower definitions of exempt work Specifying types of work that must be nonexempt and subject to overtime pay

Employee Protection Act The FLSA is an Employee Protection Act that establishes: Minimum Wage Overtime Pay Record Keeping Equal Pay Child Labor Standards

Employee Protection Act Requires that employees be paid for overtime hours worked at a rate of 1 ½ times their regular rate of pay (unless the employee is exempt from the provision) Defines overtime as over 40 hours worked in a work week Requires significant record keeping for compliance

Employee Protection Act Employees are generally presumed nonexempt and entitled to overtime pay Exemptions for executive, administrative, professional, outside sales, and computer employees are narrowly construed

Exempt Status and the Three Tests (All 3 tests must be met) Exempt status is determined by the particular duties an employee performs and the way he/she is paid. Three Tests Salary basis test Salary level test Duties test

“Salary Basis” Test Employee must receive a predetermined, fixed salary that is not subject to reduction due to variations in quality or quantity of work performed (except for some very narrow specified circumstances)

Salary Level Test Employee must be paid at least $455 per week ($23,660 annually) Salary level is not pro-rated for part time employment Salary level test does not apply to limited professions, such as teachers

Duties Test Employee must perform the duties specified in one or more of the exemptions Employees must meet all prongs of the applicable exemption test

Executive Exemption Employee must: Have primary duty of managing the enterprise of a recognized department or subdivision AND Direct the work of two or more full-time employees AND Either have authority to hire/fire or have his/her recommendations on hiring, firing, advancement, promotion, or any other change of status of employees be given particular weight

Administrative Exemption Employee must have primary duty: Of performing work “directly related to the management or general business operations” of the employer AND That requires employee to exercise “discretion and independent judgment” with respect to “matters of significance” “Directly related” includes assisting with running or servicing of the business (i.e. advisors to management)—not implementing/performing work such as assisting customers and implementing processes “Discretion and independent judgment” includes the power to make independent choices free from immediate direction (supervisory and procedural standards)

Academic Administrative Exemption Applies to employees who have primary duty of performing “administrative functions directly related to academic instruction or training in an educational establishment or a department or subdivision thereof” Includes work related to academic operations and functions (E.g., assistants responsible for administering curriculum, instruction quality/methods, measuring/testing learning potential and achievement of students, etc.) Excludes jobs that relate to areas “outside the educational field” (E.g., jobs relating to health of students; social workers and psychologists, and enrollment counselors who engage in general outreach and recruitment efforts)

Learned Professional Exemption Employee’s primary duty must be performance of “work requiring advanced knowledge” “Advanced knowledge” must be in a field of science or learning (such as law or medicine) AND must be customarily acquired by a prolonged course of specialized intellectual instruction (the academic training must be a standard prerequisite for the profession) Predominantly intellectual work that includes consistent exercise of discretion and judgment

Other Professional Exemptions Creative Professionals must: Have primary duty of performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor Not be engaged in routine mental, manual, mechanical, or physical work Teachers Have a primary duty of teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge in an educational establishment

Computer Exemption Employee must have primary duty of: Applying systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional specifications OR Designing, developing, documenting, analyzing, creating, testing, or modifying computer systems or programs, including prototypes, based on or related to user/system design specifications OR Designing, documenting, testing, creating, or modifying computer programs related to machine operating systems OR Performing a combination of these duties Can be paid on a salary or fee basis OR at least $27.63 per hour

Jobs that Cannot Qualify for Exempt Status Exemptions do not apply to: Manual laborers and “blue collar” workers Public safety employees (with narrow exceptions for certain high-level positions)

Impact Some employees currently classified as exempt may need to be changed to overtime eligible

Clearer Guidance on Exemptions Changes in FLSA Duties Test criteria: Working supervisors generally do not qualify under the Executive Test Those qualifying under the Executive exemption must manage a “recognized department” and have authority to hire/fire or make recommendations of significant weight to hire, fire, and promote employees Those qualifying under the Administrative exemption must, as a primary duty, exercise independent judgment with respect to matters of significance

In Summary… To qualify for exempt status, the new FLSA regulations: Require a significantly higher minimum weekly salary Specify narrower definitions of exempt work

Employer Responsibilities Determine what positions do not meet FLSA exemption criteria (Analysis will take place in early Fall) Ensure that employees receive fair payment for services, including overtime pay

For more information… Check the Department of Labor website: http://www.dol.gov/