by Stuart R. Buttrick, Baker & Daniels
Generally, the Fair Labor Standards Act ("FLSA") establishes minimum wage and overtime standards for employees that are not exempt from its provisions. Among the most common exemptions under the FLSA are for "executive," "administrative," and "professional" workers -- also known as the FLSA's "white collar" exemptions. The Department of Labor recently unveiled a proposal to modify the FLSA's overtime exemptions, including the exemptions for executive, administrative, and professional employees. If ultimately adopted, these changes would have a dramatic effect on employers.
Short Summary Of The FLSA's Exemption Provisions
The FLSA requires that covered employers pay their employees as least the federal minimum wage (currently $5.15 per hour) and overtime equal to time-and-one-half the employees' regular rate of pay for all hours worked over 40 in a work week. However, the FLSA contains a number of exemptions from these minimum wage and overtime requirements. For example, the FLSA states that employees employed in executive, administrative and professional capacities are exempted from the FLSA's minimum wage and overtime provisions.
In order to be exempt under these "white collar" exceptions, employees must meet certain minimum tests related to their job duties, and, with some exceptions, be paid a salary that exceeds specified minimum amounts. The "duties" tests the FLSA currently applies are decades old – last being modified in 1949. The FLSA's "salary basis test" has existed in its present form since 1954, although the salary levels required for the exemption were last modified in 1975.
The "duties tests" differ for the various categories of exemptions, and there are two different salary levels which apply to each of the exemptions. Employees that are paid below the lower salary rate, regardless of their duties, are not exempt. However, employees paid above the higher salary rate are exempt if they meet what is known as a "short" duties test. Employees paid between the lower and higher salary amounts must meet a more detailed "long" duties test to be considered exempt.
As previously noted, the salary amounts have not been revised since 1975. Under the current "long" test, the salary required for an exemption for executive and administrative employees is $155 per week and $170 per week for professional employees. The "short test" salary level for all three exemptions is $250 per week. In light of the fact that a minimum wage worker makes $206 for a 40 hour week, the vast majority of employees are tested for whether they are exempt from the FLSA under the "short test."
Under the current "short test" for "executive" employees, an employee must have as his/her primary duty the management of an "enterprise," or a recognized department or subdivision of the "enterprise," and must regularly direct the work of two or more full-time employees. Under the "short test" for administrative workers, an exempt administrative employee must have as his/her primary job duty office or non-manual work that is directly related to management policies or the general business operations of the employer or the employer's customers, and must perform work that includes work requiring the exercise of "discretion" and "independent judgment." Finally the "short test" for "professional" employees requires that an employee consistently exercise "discretion and judgment," or perform work that requires "invention, imagination or talent in a recognized field of artistic endeavor" and: (1) perform as a primary duty work that requires knowledge of an advanced type in a field of science or learning that is usually acquired have "prolonged, specialized, intellectual instruction and study" or (2) work that is "original and creative" in a "recognized field of artistic endeavor" or (3) teach in a school system or educational institution or (4) work as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer software industry.
If employees meet the foregoing requirements, they are excluded from the FLSA's minimum wage and overtime protections.
Proposed Exemption Changes
Although the proposed modifications contain a number of changes, perhaps the most significant relate to the FLSA's exemptions to its overtime and minimum wage requirements. Under the proposed regulations, the "long" and "short" tests for "executive" employees would be eliminated and a "single standard duties test" would be instituted in their place. The proposed standard duties test would provide that an executive employee: (1) have as his/her "primary duty" the management of the "enterprise" in which the employee is employed or a "customarily recognized department or subdivision;" (2) customarily and regularly direct the work of two or more full-time employees and (3) have the authority to hire or fire other employees or have "weight" given to his/her suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change in employees' status.
As for the administrative exemption, the proposed regulations would also eliminate the former "short" and "long" tests. However, the revised administrative exemption standard would retain the "short test's" requirement that an exempt administrative employee have as his/her "primary duty" the performance of "office or non-manual work related to the management or general business operations of the employer or the employer's customers." Nevertheless, the revised standard would replace the "discretion and independent judgment" requirement of the old administrative "short test" with a requirement that the employee "hold a position of responsibility" with the employer.
Finally, for professional employees, the proposed regulations would also eliminate the "short" and "long" tests and would establish different "standard duties tests" for three of the categories of employees listed in the professional employee genre: learned professionals, artistic professionals and teachers. The computer professionals standards would not be changed substantively.
Another significant revision in the proposed regulations deals with the compensation requirements for exempt employees. Under the proposed standards, the minimum salary level to qualify for exemption from the FLSA's minimum wage and overtime requirements as an executive, administrative or professional employee would be increased from $155 per week to $425 per week. The proposed regulations would thus eliminate the "short test" vs. "long test" wage requirements and instead implement a universal $425 per week amount.
According to the Department of Labor, the changes in the proposed regulations for the "duties" tests and the salary amount to qualify for exemptions would guarantee overtime pay for approximately 1.3 million workers who are currently classified as exempt. Conversely, the Department of Labor also estimates that approximately 640,000 workers currently not classified as exempt will be found to be exempt under the new regulations.
The aforementioned changes are just a few of the significant modifications contained in the proposed regulations. We will not know whether these proposed changes will be embodied in the final regulations for quite some time due to the required public notice and comment period and the various other administrative steps through which the proposed regulations must be subjected. However, even if the modifications discussed above are not implemented in their entirety, it is likely that at least some portion of the FLSA's exemption provisions will be altered and, thus, employers will be forced to reevaluate and reexamine their legal obligations under the FLSA.
Stuart R. Buttrick
Associate, Baker & Daniels
Phone: (317) 237−1038
With over 40 members currently practicing throughout its offices, Baker & Daniels' Labor and Employment Law Team is the largest in Indiana, and among the largest nationwide.
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