Classification & Compensation Roundtable June 15, 2011 Lidia Santiesteban, CCP Senior Compensation Consultant Department of Personnel Fair Labor Standards Act

Agenda Welcome. What is the Fair Labor Standards Act (FLSA)? Who is covered? What is covered under the Act? – Minimum wage and overtime. – Equal pay for men and women. – Child labor – when can children work and what type of work can they do? Nursing mothers amendment. What is not covered under the Act? What can DOL do if an employer fails to comply. Part 541 of the FLSA: Exemptions. DOL videos addressing FLSA exemptions. Other. FLSA links of interest. Handouts. 2

What is the Fair Labor Standards Act (FLSA)? The FLSA is a federal law that sets minimum wage, overtime pay, equal pay, record keeping and child labor standards for employees (who are covered by the Act) in the private sector as well as those employed in the federal, state and local government. The FLSA was enacted by the United States Congress in 1938 and amended several times since. The latest amendment to the FLSA is: The Nursing Mothers Amendment (2010). 3

The federal minimum wage is $7.25 per hour. The State of Washington ‘s minimum wage is $8.67. Overtime is generally paid at the rate of time-and-a-half for all hours worked in excess of 40 in a seven-day workweek. If a position is not exempt under the FLSA, it cannot be exempt under state law. For all practical purposes, organizations can assume that all employees are covered under the federal wage and hour laws. An agreement between an employer and an employee that minimum wage and overtime will not be paid is void and unenforceable (even in the event of unauthorized overtime), based upon two U.S. Supreme Court decisions from the 1940s: Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 66 S.Ct. 925, 90 L.Ed (1946). 4 What is covered under the Act? Minimum wage and overtime

What is covered under the Act? Equal pay for men and women Under the Equal Pay Act, men and women who perform the same job at the same levels of skill, experience, and responsibility must be paid the same. – Violation of this law raises a gender discrimination issue, which is why complaints are investigated by the EEOC. For comparison purposes, all compensation for work performed is counted, including regular wages, bonuses, commissions, and so on, as well as the value of benefits such as tuition assistance, paid leave, and similar benefits with measurable value. – This is not the same as "equal pay for comparable work", a rule followed by only a handful of individual states (comparable worth). Differences in pay must be supported by business-related factors, i.e., may not be based on gender or other minority characteristics. 5

What is covered under the Act? Child Labor In most situations, children younger than 14 may not work for an employer. Children ages 14 and 15 may work, but only in non-hazardous occupations and only during non-school hours; there is also a substantial limitation on the number of hours they can work each day and week. Children ages 16 and 17 may work any hours they want, but may not work in hazardous occupations. Once a person reaches age 18, there is no limitation on either hours or duties (other than whatever OSHA rules may apply). 6

Nursing Mothers Amendment The Nursing Mothers Amendment, which became effective on March 23, 2010, requires employers to provide unpaid "reasonable break time for an employee to express breast milk, for her nursing child for one year after the child's birth, each time such employee has need to express milk." The law also requires employers to provide "a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.” The law does not apply to employees who qualify as exempt under 29 U.S.C. § 213. Nonetheless, the DOL is encouraging employers to provide break time for all nursing mothers. Employers with 50 or more employees must comply with the law without exception. 7

What is not covered under the Act? FLSA does not mandate that the employer provide any of the following: Meal and rest breaks; however, the State may do so, and does. Paid time off for holidays, vacation, sick days. Premium pay for hours worked on weekends or holidays. Severance pay. Benefits. Pay raises. 8

What can DOL do if we fail to comply? The Wage & Hour Division of DOL Collected Over $1.4 Billion (2001 – 2008) WHD Enforcement Statistics FY 2001FY 2002FY 2003FY 2004FY 2005FY 2006FY 2007FY 2008 Back Wages Collected $131,954,657$175,640,492$212,537,554$196,664,146$166,006,014$171,955,533$220,613,703$185,287,827 Employees Receiving Back Wages 216,647263,593342,358288,296241,379246,874341,624228,645 Complaints Registered 29,08531,42331,12331,78630,37526,25624,95023,845 Enforcement Hours 998,9371,070,6001,032,8791,000,739969,776951,971899,406882,419 Average Days to Resolve a Complaint Concluded Cases 38,05140,26439,42537,84234,85831,98730,46728,242 9 Only about 20% of investigations find no violations.

What can DOL do if we fail to comply? Over 197,000 employees received FLSA related back wages in 2008, it grew in 2009 & 2010 and expected to be even higher in $16 million resulting from minimum wage violations. $123 million in overtime back wages resulting from FLSA violations. WHD examined 24,500 of the 28,242 cases for FLSA compliance. 17,700 cases resulted in citations for violations. WHD also assessed employers $3.1 million in FLSA civil money penalties 10 ViolationViolation Cases Back Wages Collected % of FLSA Back Wages * Employees Receiving Back Wages % of Employees Receiving FLSA Back Wages Minimum Wage10,085$16,557,18412%42,19921% Overtime10,105$123,686,61788%182,96493% Note: The number of employees receiving back wages sums to more than the 197,000 because one employee may be due back wages for both a minimum wage and overtime violation. The number of violation cases sums to greater than 17,700 for the same reason.

Fair Labor Standards Act – Part 541 Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees. 11

Step 1: Determine the type of job Executive – Management is employee’s primary duty. Administrative – Office or non-manual work directly related to management or general business operations. Professional – Learned: Performs work that requires highly advanced knowledge and education. – Creative: Performs work that is artistic, creative or original. – Computer: Primary duties are the application, design, development, analysis and/or modification of systems, networks, database, and/or programs. Outside Sales – Primarily makes sales or obtains orders away from the employer’s place of business.

Note: The state minimum wage was updated to $8.67 effective January 1, Executive SalaryDuties FairPay Test: $455/week  Primary duty of managing the enterprise or a recognized department or subdivision; and  Customarily and regularly directs the work of two or more other employees (or their equivalent).  Has the authority to hire or fire other employees (or recommend as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight). Step 2:Determine if the employee is exempt

Video 1: Executive Exemption rary=esa_541&sessionArgs=0B rary=esa_541&sessionArgs=0B Discussion. 14

Step 2:Determine if the employee is exempt (cont.) Administrative SalaryDuties FairPay Test: $455/week  Primary duty of performing office or non-manual work directly related to management policies or general business operations of the employer or the employer’s customers; and  Exercises discretion and independent judgment with respect to matters of significance. Does the employee meet the salary test AND duties test? If yes, the employee is exempt. If no, the employee is covered by FLSA and is nonexempt.

Video 2: Administrative Exemption rary=esa_541&sessionArgs=0B rary=esa_541&sessionArgs=0B Discussion. 16

Discretion and Independent Judgment The comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. Must be exercised with respect to “matters of significance,” which refers to the level of importance or consequence of the work performed. Decisions and recommendations may be reviewed at a higher level and, upon occasion, revised or reversed. Factors include, but are not limited to: – Whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices. – Whether the employee carries out major assignments in conducting the operations of the business. – Whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business.

Discretion and Independent Judgment – Cont’d Factors include, but are not limited to: – Whether the employee has authority to commit the employer in matters that have significant financial impact. – Whether the employee has authority to waive or deviate from established policies and procedures without prior approval. – Whether the employee has authority to negotiate and bind the organization on matters of importance or consequence of the work performed. – Whether the employee provides consultation or expert advice to management. – Whether the employee is involved in planning long- or short-term business objectives. – Whether the employee investigates and resolves matters of significance on behalf of management. – Whether the employee represents the organization in handling complaints, arbitrating disputes or resolving grievances.

Discretion and Independent Judgment Discretion and independent judgment does not include: – Applying well-established techniques, procedures or specific standards described in manuals or other sources. – Clerical or secretarial work. – Recording or tabulating data. – Performing mechanical, repetitive, recurrent or routine work.

Step 2:Determine if the employee is exempt (cont.) Learned Professional SalaryDuties FairPay Test: $455/week  Primary duty of the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; and  Advanced knowledge must be in a field of science or learning; and  Advance knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. Does the employee meet the salary test AND duties test? If yes, the employee is exempt. If no, the employee is covered by FLSA and is nonexempt.

Step 2:Determine if the employee is exempt (cont.) Creative Professional SalaryDuties FairPay Test: $455/weekPrimary duty of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor. Does the employee meet the salary test AND duties test? If yes, the employee is exempt. If no, the employee is covered by FLSA and is nonexempt.

Video 3: Professional Exemption rary=esa_541&sessionArgs=0B rary=esa_541&sessionArgs=0B Discussion. 22

Invention, Imagination, Originality or Talent A creative professional must perform work requiring invention, imagination, originality or talent. Creative professional work does not include: – Work that primarily depends on intelligence, diligence and accuracy. – Work that can be produced by a person with general manual ability and training. Exempt status is determined on a case-by-case basis, depending on the extent of the invention, imagination, originality or talent exercised.

Step 2:Determine if the employee is exempt (cont.) Outside Sales SalaryDuties FairPay Test: $455/wk.  Primary duty of making sales (any sale, exchange, contract to sell, consignment for sales, shipment for sale or other disposition including the transfer of title to tangible property, and in certain cases of tangible and valuable evidences of intangible property), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.  The employee must be customarily and regularly engaged away from the employer’s place or places of business. Does the employee meet the salary test AND duties test? If yes, the employee is exempt. If no, the employee is covered by FLSA and is nonexempt.

Step 2:Determine if the employee is exempt (cont.) Computer Professional SalaryDuties Fair Pay Test: $455/wk. Employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field performing the following duties: a)Application of systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional applications; OR b)Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; OR c)Design, documentation, testing, creation or modification of computer programs related to machine operating systems; OR d)A combination of duties described in (a), (b) and (c), the performance of which requires the same level of skills. Does the employee meet the salary test AND duties test? If yes, the employee is exempt. If no, the employee is covered by FLSA and is nonexempt.

Computer Employee Exemption Does not include employees engaged in manufacture or repair of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitated by the use of computers and computer software programs (e.g., engineers, drafters and other skilled in computer aided design software, but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test previously described, are not exempt under the computer employee exemption. 26

“Highly Compensated Employees” Eligible for exemption as a highly compensated employee if: – Earns $100,000 in total annual compensation per year, AND – Customarily and regularly performs any one or more of the exempt duties of an “executive”, “administrative”, or “professional” employee as defined by 29 CFR 541. The State of Washington does not recognize this exemption and in cases where state law is more favorable than the FLSA, employers must follow state law. Therefore; do not assume the position is exempt because of the salary level, all positions should be reviewed for exemption.

Other 1. Share new FLSA Exemption Assessment Form. 2. Open Discussion.  Share experiences with DOL audits/complaints and results. 3. Raise any current FLSA issues and concerns. 4. Questions.  Items needing additional clarification. 28

FLSA Links of Interest More information on the subject: DOL Regulatory Library: FLSA DOL Handy Reference Guide: DOL Opinion Letters: http// List of Laws Administered by DOL: DOL Mediamosaic Library (training Videos on Exemptions) www.vodioum.com/mediapodlibrary/index.asp?library=esa_541&sessionArgs=0B DOL Fact Sheets: To ask a specific question or register a comment with DOL: – – Telephone, toll-free: US-WAGE L&I – State of Washington specific information (Administrative Policies/RCW):

Handouts FAQs 541 exemption test from DOL. WHD Fact Sheet #17B: Exemption for Executive Employees Under the Fair Labor Standards Act. WHD Fact Sheet #17C: Exemption for Administrative Employees Under the Fair Labor Standards Act. WHD Fact Sheet #17D: Exemption for Professional Employees Under the Fair Labor Standards Act. WHD Fact Sheet #17E: Exemption for Employees in Computer Related Occupations Under the Fair Labor Standards Act. WHD Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act. Nursing Mothers Amendment Summary. 30