WAGE AND HOUR ISSUES: FAIR LABOR STANDARDS ACT

Colleen B. Mendel, MBA

Executive Director

Training & Technical Assistance Services

Management Responsibilities Pay employees for work you know or suspect

is performed See that work you do not want performed is

not done Have policies against performing work you do

not want performed Exercise control and enforce policies Pay for pre-approved OT & suffered work

Management Responsibilities

Understand that:

Simply because an employee is paid a salary does not make him/her exempt

As long as an employee is paid hourly, s/he is normally considered non-exempt

Whenever an employee has assigned responsibilities (even is not exercised), s/he must be paid

“Fair Pay” Rules New rules published April 23, 2004 Most significant revision since late 1940s Much less drastic than rule originally

proposed March 31, 2003 Received nearly 80,000 comments Absent judicial or Congressional action, takes

effect on August 23, 2004 Senate voted to block new rules on May 4th

House voted to support new rules on May 12th

“Fair Pay” Rules Clarify & simplify old long & short tests for

determining exempt status Raise minimum salary requirements from as little as

$155/wk ($8,060/yr) to $455/wk ($23,660/yr) Can deny OT to “highly compensated” employees

(>$100,000/yr) who meet exempt criteria Can suspend exempt employee for misconduct in

one day increments Provide “safe harbor” to fix improper deductions from

exempt employee’s pay Clarify educational requirements for professional

exemption

White Collar Exemptions

Exempt from both minimum wage and overtime pay

Executive Administrative Professional Outside Sales Certain Computer Employees (under professional

exemption)

Three Tests for Exemption

Salary Level

Salary Basis

Job Duties

Salary Level TestFor most employees, min salary level

required for exemption is $455/wkCan be paid in equivalent amounts over

longer period than week (e.g., monthly)Highly compensated: total annual

>$100,000, at least $455/wk,performs exempt duties (executive, administrative or professional)

Salary Basis TestPredetermined amount each pay periodPay not reduced based on variations in

quality or quantity or work performedPaid full salary for any week in which

the employee performs any work (some permitted deductions follow)

Need not be paid for any work week when no work is performed

Permitted Salary Deductions Absence from work for one or more full days

for personal reasons Absence from work for one or more full days

due to sickness or disability if deductions made under plan, policy or practice of providing wage replacement benefits for these types of absences

To offset any amounts received as payment for jury fees, witness fees or military pay

Permitted Salary DeductionsPenalties for violating safety rules of

“major significance”Unpaid disciplinary suspension of one

or more full days for violations of workplace conduct rules (NEW)

Proportion of time worked in first or last weeks of employment

Unpaid leave taken under FMLA

Safe Harbor (NEW) Exemption will not be lost if the employer:

-has clearly communicated policy prohibiting improper deductions & a complaint mechanism

-reimburses employees for improper deductions

-makes good faith commitment for future compliance

Unless the employer willfully violates the policy by continuing improper deductions after complaints

Executive Exemption Old RulesMin $155/wkPrimary duty: mgmt of

agency, dept or subdivision

Customarily, regularly directs work of 2 or more employees (or at least 2 FTEs)

Fair Pay RulesMin $455/wk or

$100,000/yrSame duty and

supervision testsAuthority to hire/fire or

recommendations given “particular weight”

Administrative Exemption Old Rules

Min $155/wk

Primary Duties: non-manual or office work directly related to mgmt policies or general business ops

Requires discretion & independent judgment

Fair Pay RulesMin $455/wk or

$100,000/yrPrimary Duties: non-

manual or office work related to mgmt or general business opps or employer’s customers

Requires discretion & independent judgment

Discretion & Independent JudgmentDoes the employee have the authority to: commit the employer in matters that have

significant financial impact? waive or deviate from established policies

and procedures without prior approval? negotiate and bind the company on

significant matters? formulate, affect, interpret or implement

management policies or operating practices?

Discretion & Independent JudgmentDoes the employee: provide consultation or expert advice to

management? have involvement in planning long- or short-

term business objectives? investigate and resolve matters of

significance on behalf of management? represent the agency in handling complaints,

arbitrating disputes or resolving grievances?

Discretion & Independent Judgment

Does the employee: carry out major assignments in conducting

the operations of the agency or program? perform 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 organization?

Discretion & Independent JudgmentDiscretion 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

Professional Exemption Old RulesMin $170/wk or $27.63 per

hr for computer employees

Primary Duty: Work requiring advanced knowledge in field of science or learning customarily acquired by prolonged course of intellectual instruction

Discretion & independent judgment

Fair Pay Rules

Min $455/wk or $100,000/yr or $27.63/hr for computer employees

Primary Duty: Same

Discretion & independent judgment

Advanced Knowledge Predominantly intellectual in character Includes work requiring consistent exercise of

discretion and judgment Advanced knowledge generally used to

analyze, interpret or make deductions from varying facts or circumstances

Not work involving routine mental, manual, mechanical or physical work

Cannot be attained at the high school level

Computer EmployeesCan be paid on an hourly basis and

retain exempt statusNo requirement to exercise discretion

and independent judgmentNot eligible for “highly compensated”

test

What should your agency do? Review and revise employee classifications

-Convert low-paid personnel (<$455/wk) to non-exempt status

-Convert misclassified employees to non-exempt status

-Use this opportunity to correct past policies without “raising eyebrows”

What should your agency do? Review payroll practices

-Review sample payroll runs for salary of part-time and other workers and the $455/wk threshold-Make sure you are complying with the salary basis test-Train managers and payroll workers to avoid impermissable deductions

What should your agency do? Review and revise job descriptions

-Better describe actual duties-Emphasize exempt duties-Describe discretion and independent judgment where applicable-Expressly give executives authority to hire/fire or to make recommendations given particular weight-Weigh and document the determination of a position’s primary duty-Document why workers are exempt and under what exemption-Seek counsel for close classification issues

What should your agency do? Revise Personnel Policies & Procedures

-To comply with salary basis test-To allow disciplinary deductions in full day increments (after August 23, 2004)-To define your work week-To distinguish policies for exempt workers from non-exempt salaried and hourly workers-To add the “safe harbor” policy to allow correction of improper deductions

What should your agency do? Revise financial policies & procedures

-To add the “safe harbor” policy to allow correction of improper deductions-To ensure ongoing compliance with salary basis test-To allow for “Highly Compensated” test-To include impermissable deductions-To ensure proper payment of overtime

What else should you do? Be prepared to implement new policies,

procedures and practices on August 23, 2004.

BUT Watch the financial publications and the news

to see if Congressional or court action delays the effective date of the Fair Pay Rules, requires certain changes, or remands to DOL for revision.