New England Biz Law Update
The following summarizes the Fair Labor Standards Act regulations that will go into effect Aug. 23.
The Act establishes the federal minimum wage (currently $5.15 per hour) and requires the payment of overtime at 1.5 times the regular rate of pay for all hours over 40 hours in a workweek.
Five categories of white-collar jobs are exempted from the overtime requirement: executive; administrative; professional; certain computer employees; and outside sales.
In addition to the job categories, to be exempt from overtime, an employee must be paid at minimum a salary of $455 per week, and make between make more than $23,660 and less than $100,000 per year.
Any workers paid less than $455 per week on a salary basis – up to a total of $23,660 in total annual compensation – will be non-exempt and eligible for overtime regardless of their job duties or how they are paid. Since 1975, this figure had been set at $155 per week.
The new regs specifically indicated that blue-collar employees and police, firefighters, paramedics, emergency medical technicians and other "first responders" and investigators are not exempt from overtime.
Executive Duties Test
The new regulations impose a new requirement that in order for employees who make more than $23,660 but less than $100,000 per year to be exempt as executives, they must either have the authority to hire or fire other employees, or any suggestions or recommendations they give as to hiring, firing, promotion or other change in status must be given "particular weight."
The element pertaining to hiring and firing is new.
The primary duty of an "executive" must be to manage an enterprise or a customarily recognized department or subdivision. An executive must customarily and regularly direct the work of two or more employees.
Primary duty does not necessarily mean that the duty take up more than 50 percent of an individual’s time. An employee can perform exempt and non-exempt work and still not be entitled to overtime as long as their most important duty is managing a department. An example would be an assistant store manager who also stocks shelves and serves customers.
Administrative Duties Test
The new regs clarify the existing test for determining whether an employee qualifies as an administrative employee. After receiving comments from many interested parties, the department rejected a proposed plan to institute a requirement that an administrative employee hold a "position of responsibility" in order to be considered exempt.
Under the final regs, an employee who makes more than $23,660 but less than $100,000 per year must have as his or her primary duty "the performance of office or non-manual work directly related to the management of the general business operations of the employer or [its] customers." The employee’s primary duty must also "include work" that involves the "exercise of discretion and independent judgment with respect to matters of significance."
Exercising discretion and independent judgment in part means that an employee compares and evaluates possible courses of conduct and then acts or makes a decision after considering the various possibilities, which could be formulating policies, carrying out major assignments, committing the company in matters of significant financial impact, negotiating on behalf of the company, or handling complaints and resolving disputes.
The regs indicate that some employees who are typically exempt under the administrative exemption include: insurance claims adjusters, financial services employees, human resources managers who formulate and implement employment policies, and employees who lead a team of other employees in completing major projects.
Administrative employees may use manuals or guidelines when they relate to highly complex matters, and interpreting them requires advanced or specialized knowledge. The manuals should assist the employee in exercising independent discretion or judgment, rather than stating a course of conduct.
Professional Duties Test
The new regs maintain the delineation between the learned and creative professional exemptions.
The learned professional exemption applies to employees who make more than $23,660 and less than $100,000 per year, if their primary duty it is to perform work that requires advanced knowledge in a field of science or that generally requires a prolonged course of "specialized intellectual instruction." The learned professional’s work must include "work requiring the consistent exercise of discretion and judgment."
The department withdrew a controversial proposal that would have allowed employees to be exempt if they attained similar knowledge through a combination of work experience and study.
Paralegals will generally not be considered learned professionals and are therefore non-exempt. Licensed practical nurses, bookkeepers or clerks who perform accounting duties are also generally non-exempt. However, registered nurses, physician’s assistants who have completed four-year degrees, funeral directors and accountants would usually qualify as exempt.
Creative professionals are considered exempt if their primary duty is to perform work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Some examples include workers who use their ingenuity, imagination, originality and talent, largely free from supervision or direction, such as musicians, composers, essayists, novelists, play writers, painters, photographers, and certain types of journalists.
Outside Sales Employee Duties Test
The primary duty must be making sales or obtaining orders or contracts, and the employee must customarily do the work away from the employer’s place of business.
This category does not include Internet, telephone or mail sales. The rule limiting non-exempt duties of outside sales workers to 20 percent has also been eliminated.
Computer Employee Duties Test
The worker must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field.
The primary duty must entail the application of systems analysis techniques and procedures, or designing and testing computer systems, or designing and testing computer programs related to machine operating systems.
The new regs made no significant changes to this category.
Highly Compensated Employees
An employee who makes more than $100,000 a year, and performs office or non-manual work, and customarily performs one or more of the exempt duties or an executive, administrative or professional employee are exempt from overtime.
