Labor and Employment Law Alert: FLSA "White-Collar" Overtime Exemption Regulations Go Into Effect

Legal Alert

Apr 1, 2004

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The new Fair Labor Standards Act ("FLSA") overtime exemption regulations went into effect on Monday, August 23, 2004. For employers in Oregon, California and Washington state, the impact of the new regulations is minimal. For employers in other states Stoel Rives serves, the changes in FLSA regulations are more important. In any case, the change in overtime law presents a perfect opportunity to review your company’s wage and hour compliance. Specifically, the major changes include:

Minimum Salary Raised. The regulations substantially increase the required minimum weekly salary from the old $155/$250-per-week levels that were set in 1975 to a new minimum of $455 per week--the equivalent of an annual salary of $23,660 per year. It is estimated that this change will provide overtime protection to 6.7 million workers who were exempt under the old regulations or whose status was previously "ambiguous."
Highly Compensated Employee Test. The DOL has eliminated the "long" and "short" tests for each exemption. There will now be only one test for each exemption. But the DOL did add a generic short test that would allow a highly compensated employee--one who makes at least $100,000 per year--to be considered exempt if the employee "customarily and regularly performs" any one or more of the exempt duties of an executive, administrative or professional employee.
Modified No-Docking Rule. The new regulations allow full-day deductions to pay for disciplinary absences to salaried employees without destroying their exemption.
Streamlined Duties Test. The new regulations significantly streamline the duties tests as follows:
- Executive Employees (1) are compensated on a salary basis of at least $455 per week; (2) have as their "primary duty" management of the enterprise or customarily recognized department or subdivision; (3) "customarily and regularly" direct the work of two or more other employees; and (4) have the authority to hire or fire other employees, or their suggestions and recommendations as to hiring, firing, promotion, etc. are given "particular weight."
- Administrative Employees (1) are compensated on a salary basis of at least $455 per week; (2) have as their "primary duty 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 (3) their "primary duty includes the exercise of discretion and independent judgment with respect to matters of significance."
- Professional Employees (1) are compensated on a salary basis of at least $455 per week and (2) whose "primary duty" either (i) requires "knowledge of an advanced type in the field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction" or (ii) requires "invention, imagination, originality or talent in a recognized field of artistic or creative endeavor."
Blue-Collar Employees and Public Safety Employees Nonexempt. The new regulations include sections expressly stating that manual laborers or other "blue-collar" employees as well as police officers, firefighters and similar public safety employees are not subject to these regulations and entitled to overtime.

What does this mean to you? In a nutshell, under federal law, employees who earn a salary of less than $23,660 per year will be entitled to overtime. Those employees who earn more than $100,000 will typically be exempt from overtime (except (1) those employees performing manual labor or other "blue collar" work or (2) police officers, firefighters and other similar public safety employees). And those employees performing nonmanual work and earning between $23,660 and $100,000 will require a closer look. But remember, federal law is the floor, not the ceiling. Employers are still subject to state-law wage and hour regulations. That means, in states that have their own independent wage and hour regulations regarding the "white-collar" exemptions, like Oregon, Washington and California, the immediate impact of most of these changes--except the increase in minimum weekly salary to $455--will be minimal.

Labor and Employment Law Alert: FLSA "White-Collar" Overtime Exemption Regulations Go Into Effect

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