NO. 355
8.10.04

In less than two weeks, on August 23, 2004, the long-awaited final regulations revising the white-collar exemptions under the Fair Labor Standards Act (“FLSA”) will finally take effect.

The content of the new regulations was discussed in a Constangy Client Bulletin issued on 4/21/04. That bulletin, as well as a more in-depth discussion of the changes, are posted on Constangy’s website at www.constangy.com. Here is a review of the highlights:

  • The new regulations define which employees are exempt from the FLSA’s minimum wage and overtime requirements under the classifications of “executive,” “administrative,” “professional,” “computer employee,” and “outside sales.” For the most part, these regulations had been unchanged for decades.

Compensation

  • Employees earning a weekly salary of less than $455 have no chance of qualifying for the executive, administrative, or professional exemptions.
  • For so-called “computer employees,” the new compensation criteria is a salary of not less than $455 a week, OR an hourly wage of not less than $27.63.
  • The “outside sales” exemption has never had compensation criteria, and that has remained unchanged.
  • To qualify for a new abbreviated job duties test for “highly compensated employees” (see below), the employee must earn at least $100,000 per year, including salary, commissions, and incentive compensation. This total of $100,000 must include a weekly salary of at least $455 per week.

Job Duties

  • Generally, the job duties tests have been adjusted in relatively minor ways; some that are more favorable to employers, and others that make application of the exemption more difficult.
  • For the “highly compensated” job duties test (see compensation requirements, above), the employee’s primary duty must be office or non-manual work, and the employee must meet at least one of the exempt duties requirements of the executive, administrative or professional exemptions.

Miscellaneous

  • Employers will be allowed to make full-day salary deductions for unpaid disciplinary suspensions imposed in good faith for violations of workplace conduct rules. With very rare exceptions, such deductions are not allowed under the current regulations.
  • The regulations provide guidance to allow employers to achieve a “safe harbor” from the risk of having entire classes of exempt employees retroactively disqualified based on improper salary deductions.

Constangy recommends that employers carefully analyze the impact of the final regulations on their various exempt classifications. Some currently-exempt employees may lose their exempt status, while others not currently exempt may become exempt. It may also be necessary for employers to reevaluate job responsibilities or compensation levels to maintain exemptions.

The new regulations also present employers with an opportunity to discreetly correct misclassifications or questionable classifications.

If you would like compliance assistance with the new regulations, please contact Jim Coleman of the Fairfax, Virginia, office (571-522-6100), who is Chairman of the firm’s Wage and Hour Practice Group, or the Constangy attorney of your choice.

Attorneys

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