The U.S. Department of Labor has released long-awaited changes to the Fair Labor Standards Act regulations that define the “white collar” exemptions to the overtime pay requirements of the Act.  The regulations generally provide that employees will not be considered exempt from overtime compensation unless they are paid on a salary basis of $455 or more per week ($23,660 annualized) and meet certain tests regarding their job duties.  The new regulations establish a separate test for “highly compensated” employees who earn over $100,000 annually.  In addition, the regulations contain provisions specifying that employees in certain occupations, such as licensed practical nurses, police officers, fire fighters, paramedics, and other first responders, and workers who perform work requiring repetitive operations with their hands, are considered “blue collar” employees who are entitled to overtime compensation.   

In the first major overhaul of the wage and hour exemption tests in over 50 years, the regulations revise the definition of the duties performed by those employees who qualify for the white collar exemptions.  The final regulations eliminate the current “short” and “long” tests and adopt a single standard duties test for the executive, administrative and professional exemptions.
 

The final regulations expand the duties test used to determine whether executive employees are exempt.  To be considered an exempt executive, the employee’s primary duty must be managing the business or a recognized department or subdivision of the business.  The rules add a new requirement that those falling within the executive exemption must not only supervise two or more employees, and now earn a salary of $455 or more per week, but must also have the authority to hire or fire employees or make recommendations as to hiring, firing or other changes of employee status that are given particular weight. 

To be an exempt administrative employee, the individual’s primary duty must consist of the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and must include the exercise of independent discretion and judgment.  The new regulations add that the exercise of independent discretion and judgment must relate to “matters of significance,” and the employee must also earn a salary of $455 or more per week. 

The final regulations add a new section which includes illustrations of the application of the administrative duties test to particular occupations.   This section provides that insurance claims adjusters, employees in the financial services industry, team leaders, executive assistants, human resources managers, and purchasing agents, with certain stipulations, generally meet the duties requirement of the administrative exemption, while examiners or graders, comparison shoppers, and public sector inspectors or investigators generally do not.

The new regulations clarify that an exempt professional employee is one whose primary duty is the performance of work requiring knowledge of an advanced type (defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment) in a field of science or learning customarily acquired by a prolonged course of specialized instruction or whose primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. 

The regulations contain a new section applying the professional exemption to specific occupations as well.  This section provides that medical technologists, registered nurses, dental hygienists, physician assistants, accountants, chefs, athletic trainers, and funeral directors and embalmers generally meet the duties test for the professional exemption if they have successfully completed a defined course of study and/or have been registered or certified, while paralegals generally do not qualify as exempt.  Teachers, doctors and lawyers do not need to meet the minimum $455 per week salary requirements to be considered exempt professionals, however, all other professionals must.

The regulations have created the new exempt category of highly compensated employees.  To qualify for this exemption from overtime, such employees must perform office or non-manual work and be paid a total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis).  In order to maintain the exemption from overtime compensation, these employees must customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard exemption tests for those categories.

The regulations state that the new $455 per week salary requirements do not apply to the outside sales exemption.  However, the regulations clarify that to be considered an exempt outside sales employee, the employee’s primary duty must consist of making sales or obtaining orders or contracts for services and the employee must be customarily and regularly engaged away from the employer’s place of business in doing so.  “Outside sales” does not include sales made by mail, telephone or over the internet unless such contact is used merely as an adjunct to sales calls made in person.

The new regulations state that in order for an employee to qualify for the computer employee exception, the employee must be compensated either on a salary or fee basis of not less than $455 per week, or, if compensated on an hourly basis, at a rate of not less than $27.63 an hour.  Thus, computer employees are the only workers who can be paid on an hourly basis and still maintain their exempt status.  Additionally, to meet the computer employee exemption, the employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker who is primarily engaged in computer systems analysis and programming.  The exemption does not cover employees who are engaged in the manufacture or repair of computer hardware or related equipment. 

The regulations were published in the Federal Register on April 23, 2004, and they will take effect 120 days after publication, which is on August 21, 2004.  The exemption tests can be obtained from the Department of Labor’s website at www.dol.gov.   

If you would like more information on the application of these new regulations to your business, please contact: 

Jan Hensel at Buckingham Columbus: (614) 227-4267, JHensel@bdblaw.com

Vince Tersigni at Buckingham Akron: (330) 258-6552, VTersigni@bdblaw.com

Douglas Paul at Buckingham Cleveland: (216) 615-7340, DPaul@bdblaw.com

Tod Morrow at Buckingham Canton: (330) 491-5229, TMorrow@bdblaw.com

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