DOL Changes the “White Collar” Exemptions to FLSA

The United States Department of Labor has issued rules revising the criteria used to determine whether employees may be classified as “exempt” (e.g., salaried) from the minimum wage and overtime pay requirements of the Fair Labor Standards Act (FLSA). These rules went effective August, 2004. The last significant change they made to these rules was in 1949, other than increasing minimum salary levels in 1975.

Section 13 (a)(1) of the FLSA generally requires that all employees earn at least the federal minimum wage (currently $5.15 per hour) and overtime pay of time-and-one-half for more than 40 hours worked per week. So-called “white collar” exemptions remove employees classified as “executive,” “administrative,” “professional,” “outside sales” or “computer employees” from FLSA coverage. A summary of the first three of these categories are set forth below.

The big news with the new regulations is that the salary basis is increased to $455 per week (from $155 and $250 per week under the old tests), and the “long test” and “short test” have been replaced with a “standard duties” test. By eliminating the long test, the general 20% rule has been revised upward so that now an exempt employee’s “primary” duty must be spent performing the exempt work. There are also special rules for individuals making in excess of $100,000 per year.

For the “Executive Exemption,” the job duties have been revised so that executives must do more than just supervise, they must have actual authority to hire or fire or their recommendations must be given “particular weight.” This seems to eliminate the exemption for many so-called assistant managers.

The new tests are set forth below.

“Executive” employees must:

1. be salaried, at a rate of no less than $455.00 per week;
2. be primarily engaged in management-related activities; and
3. be involved in the supervision of two or more other employees on a regular basis, including either the ability to hire and fire or to make recommendations concerning employees’ advancement or termination.

“Administrative” employees must:

1. be salaried, at a rate of no less than $455.00 per week;
2. be primarily engaged in “the performance of office or non-manual work directly related to the management or general business operations of the employer or [its] customers”; and
3. be able to exercise “discretion and independent judgment with respect to matters of significance” in the fulfillment of their primary activities.

“Professional” employees must:

1. be salaried, at a rate of no less than $455.00 per week; and
2. be primarily engaged in activities requiring “knowledge of an advanced type [predominantly intellectual in character and requiring a consistent exercise of discretion and judgment] in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction”; or
3. be primarily engaged in “the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”