Flsa white collar exemptions

May 1, 2012

The FLSA’s “White Collar” Exemptions(It only seems as if “FLSA” means the “For Lawyers’ Security Act.”)

Richard G. Vernon

Lerch, Early & Brewer, Chtd.

www.lerchearly.com

© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

SIMPLY SALARIED?

NO

SALARIED

EXEMPTDUTIES

+

What Is Required To Be Exempt?

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The Regulations: What’s a “Salary”?

The individual is paid a “predetermined amount” of compensation on a regular basis, generally weekly, bi-weekly, or bi-monthly.

The “predetermined amount” cannot be reduced because of variations in the quality of quantity of work performed, that is, if an employee’s absence is caused by the employer or by operating requirements of the business. (Section 541.602(a))

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The Amount of the RequiredSalary (Seriously) In order to qualify as an exempt executive,

administrative or professional employee, the individual must be paid an annual salary of at least $23,660. That’s at least $455 per week (or biweekly at $910, semimonthly at $985.83, or monthly at $1,971.66).

Exempt computer employees need to be paid at $27.63 per hour or may be salaried in the amount stated above.

The compensation requirements do not apply to lawyers , doctors, teachers and medical interns or residents.• 4


Highly Compensated Employees

Employees who have a total annual compensation of $100K or more (not including benefits) and who regularly perform one of more of the exempt duties of an executive, administrative or professional employee (which we will discuss shortly) are exempt.

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Primary Duty

In order to qualify for one of the “white collar” exemptions, an employee’s “primary duty” must be the performance of exempt work. “Primary duty” means “the principal,

main, major or most important duty that the employee performs.”

Determination of an employee’s primary duty is based on all the facts in the particular case, with the major emphasis on the character of the job as a whole.

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Primary Duty

Factors to be considered in determining the primary duty include: The relative importance of the exempt

duties, compared with the other duties; The amount of time spent performing

exempt work; The individual’s relative freedom from direct

supervision; and The relationship between the employee’s

salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.

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Primary Duty

The amount of time spent performing exempt work is a useful guide in determining whether exempt work is the primary duty of an employee. However, time alone is not the

sole test, and the exempt employee is not required to spend more than 50% of time performing exempt work.

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1. Executive Employees

An exempt executive employee fulfills all of the following: Required salary: $23,660 year/ $455

week Primary duty is management of the

enterprise in which the employee is employed or of a customarily recognized department or subdivision.

Customarily and regularly directs the work of two or more other employees Must be two full-time equivalents

(FTE’s)

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Executive Employees

An exempt executive employee must also have the authority to hire or fire other employees or his/her suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees must be given “particular weight.”• 1

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Factors to be considered in determining whether an employee’s suggestions and recommendations (“suggs and recs”) are given particular weight include include: Whether it is part of the employee’s job to

make such suggs and recs, What is the frequency with which the

employee makes suggs and recs, and What is the frequency with which the

employee’s suggs and recs are relied upon. The suggs and recs must pertain to the

employees whom the executive regularly directs.

Suggestions and Recommendations

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2. Professional Employees

The “professional exemption” applies to two different kinds of employees: Individual whose primary duty is the

performance of work “requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.” (The “learned” professional exemption.)

Individual whose primary duty is the performance of work “requiring imagination, originality or talent in a recognized field or artistic or creative endeavor.”

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Professional Exemption

An exempt learned professional employee receives the requisite salary and fulfills all of the following standards:1. The individual performs work requiring

advanced knowledge The work must be predominantly

intellectual and requires the consistent exercise of discretion and judgment

Advanced knowledge cannot be attained at the high school level

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2. The advanced knowledge is in a field of science or learning, including law, medicine, accounting, engineering, various types of physical, chemical and biological sciences, pharmacy, and similar occupations. Distinguished from the

mechanical arts and skilled trades.

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3. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. The exemption is available to employees in

the appropriate professions who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction.

Case law says this only applies to an unusual individual, not to a particular job or group of employees.

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The exemption is not available for occupations that may be performed with only general knowledge acquired by an academic degree in any field, with knowledge acquired through an apprenticeship or with training in the performance of routine processes.• 1

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Scorecard with respect to certain specific positions: Registered or certified medical

technologists Exempt, if appropriate education

Registered nurses Exempt

Licensed practical nurses Non-exempt

Accountants Exempt

Bookkeepers and Accounting Clerks Non-exempt

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3. Administrative Exemption The required salary Primary duty of performing office or non-

manual work directly related to the management or general business operations of the employer or the employer’s customers.

Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

The exercise of discretion and independent judgment usually involves considering possible courses of conduct and acting or making a decision after various possibilities have been considered.

Regulation identifies “discretion and independent judgment” factors.

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Work Directly Related to Manage-ment or General Business Operations Trickier than it looks To meet the first standard of “work

directly related to management or general business operations,” an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.

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Directly Related to Management or General Business OperationsThis means the employee is not

doing the work for which the company has been established – for example, making widgets.

Instead, the employee assists in getting the company’s work done.

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Functional Areas

Such work includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing (Note: However, selling is not included in this list.); research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, internet and database administration (Note: This is a different, and lower, standard than exempt high level computer employees.); legal and regulatory compliance; and similar activities.

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Discretion and Independent Judgment – 10 Factor Test Ten factor test to determine discretion and

independent judgment: Whether the employee has authority to formulate,

affect, interpret, or implement management policies or operating practices;

Whether the employee carries out major assignments in conducting the operations of the business;

Whether the employee performs 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 business;

Whether the employee has authority to commit the employer in matters that have significant financial impact;

Whether the employee has authority to waive or deviate from established policies and procedures without prior approval;

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Discretion and Independent Judgment

Whether the employee has authority to negotiate and bind the company on significant matters;

Whether the employee provides consultation or expert advice to management;

Whether the employee is involved in planning long- or short-term business objectives;

Whether the employee investigates and resolves matters of significance on behalf of management;

Whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances

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Specific Exempt Occupations Insurance claim adjusters Financial services industry employees (including

banks), but not someone whose primary duty is selling financial products

“Team Leaders” (who run teams of workers, though don’t supervise; probably a limited exemption for team leader involved in major projects)

Executive Assistant to an owner or senior executive of a large employer (not secretarial or clerical assistants)

Human resources managers Purchasing agents• 2

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4. High-Level Computer Employees Employers have a choice paying on a

salary basis (at least $455/week) or on an hourly basis (at least $27.63/hour)

Computer systems analysts, computer programmers, software engineers, or other similarly skilled workers. Their primary duty must involve:

The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system function specifications

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Computer Employees

The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications

The design, documentation, testing, creation or modification of computer programs related to machine operating systems.

Manufacture and repair of computer hardware and related equipment is not exempt work.

No requirement to exercise discretion and independent judgment

Not eligible for “highly compensated” test• 26


5. Outside Sales

Primary duty of making sales or obtaining orders or contracts for services or use of facilities.

Customarily and regularly engaged away from the employer’s place of business.

No salary requirements

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Exceptions Re Salary Deductions

Seven exceptions to the prohibition against deductions from pay, that is, deductions from pay for full days missed may be made in the following situations:

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Exceptions

1. An absence for personal reasons, other than sickness or disability.

Note: If the employee is absent for a day-and-a-half, a deduction may be made only for the full day of absence.

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Exceptions

2.An absence of one or more full days for sickness or disability, if the deduction is made in accordance with a bona fide paid sick leave or vacation leave plan or policy.Note: Deductions are also permitted before the employee has qualified under the plan and after the employee has exhausted his or her available leave.

3.Offset of amounts received by an employee for jury duty, attendance as a witness, or temporary military leave.

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Exceptions

4.Penalties imposed in good faith for violations of “safety rules of major significance.”

5.A disciplinary suspension of one or more full days imposed in good faith for infractions of workplace conduct rules, so long as there is a written policy.

6.Less than a complete initial or last week of employment.

7.Weeks in which an employee takes unpaid FMLA leave.• 3

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Exceptions

A secret 8th exception An exempt employee need not be

paid for any work week in which he/she does not perform any work.

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Correcting Improper Deductions Improper deductions from salary will

invalidate an employee’s exempt status, if the employer did not intend to pay the employee on a salary basis. This generally will happen only if the employer has an “actual practice” of making improper deductions.

Evidence of an “actual practice” includes: The number of improper deductions The time period during which the improper deductions were made The number and geographic location of the employees affected.

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Correcting Improper Deductions Evidence of an “actual practice”

(continued): The number and geographic location of

managers who made the improper deductions

Whether the employer has a clear policy permitting or prohibiting improper deductions

If the employer has an “actual practice,” the exemption is lost only during the time period in which the improper deductions were made, and only for employees in the same job classification working for the same manager(s) responsible for the deductions.

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Correcting Improper Deductions

“Safe Harbor” if an employer Has a clearly communicated policy

that prohibits improper deductions, Has a complaint mechanism, Reimburses employees for any

improper deductions, and Makes a good faith commitment to

comply The exemption is not lost,

unless the employer willfully continues to make improper deductions after receiving employee complaints.• 3

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Salary Additions

Additions to an exempt employee’s pay generally do not invalidate a salary basis of pay, so long as the employee receives the guaranteed salary as part of his or her compensation Such pay may even be on an

hourly basis for the extra hours worked.

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Proactive Measures For Employers Review and revise classification

of employees Change low-paid supervisory

personnel and others earning less than $455/week to non-exempt status

Convert misclassified employees to non-exempt status• 3

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Proactive Measures For Employers Review and revise job descriptions

Clarify and list actual duties Emphasize exempt duties Describe discretion and independent judgment,

where applicable – use as many of factors as possible

Expressly give executives authority to hire and fire or to make recommendations that will be given particular weight

Weigh and document the determination of a position’s primary duty

Document why workers are exempt, and under which exemption

Seek counsel for close classification issues• 3

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Proactive Measures For Employers Review payroll practices

Make sure they are complying with salary basis test.

Train managers and payroll workers to avoid impermissible deductions.

Be sure anyone over $100K meets the tests for exempt status.

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Proactive Measures For Employers Review and revise policies and

handbooks To comply with salary basis test To allow disciplinary deductions in full

day increments To define the workweek To distinguish policies for exempt

workers from nonexempt, salaried and hourly workers

To add in “safe harbor” policy to allow correction for improper deductions• 4

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Speakers

Rick Vernon is an employment attorney at Lerch, Early & Brewer in Bethesda, Maryland who defends employers against all workplace claims made by individuals (applicants, employees and former employees), governmental agencies or other organizations. These encompass discrimination allegations, wage and hour disputes, EEOC complaints and sexual harassment claims, among others.

(301)[email protected]

Date post:	24-Dec-2014
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