U.S. Department of Labor Narrows Fair Labor Standards Act Exemptions

The federal Fair Labor Standards Act (FLSA) applies to most employers in the United States regardless of size covering a variety of employment rules, including required minimum wages and overtime pay.  The Department of Labor recently adopted changes to the regulations defining exemptions under FLSA, §29 CFR Part 541.  The changes become effective August 23, 2004.  The exemptions have been narrowed by applying an increased wage requirement to employees in all exempt categories and by redefining activities that allow an exemption to be available.  Employers need to examine employees who have been exempt from the application of the Fair Labor Standards Act to determine if they remain exempt.  A brief summary of the new exemption provisions follows.

A wage guideline is provided for all exemptions.  Any worker earning salary, wages or fees less than $455 per week is guaranteed overtime pay protection.  This is an increase from $155 to $250 depending on the exemption category and type of test previously applied.  Alternative tests (a "short form" and a "long form" test) for exemption are replaced by standard tests for each exemption category.  Also, the percentages of time an employee needed to apply to certain activities to be exempt have been removed.

The new rules provide five exemption categories rather than four by moving the computer information employee exemption, formally in the professional category, to a separate fifth category.

Executive employees are exempt if their primary duties include managing either the enterprise or a customarily recognized department or subdivision of the enterprise.  These exempt executives must have the ability to hire or fire employees or to make suggestions that are given weight by the company. 

Administrative employees , similar to prior rules, are exempt if their primary duty directly relates to the management or general business operations of the employer company.  They must exercise discretion and use independent judgment, but the Department of Labor removed the requirement of regularly and directly assisting a proprietor, or an employee employed in a bona fide executive or administrative capacity. 

Professional employees are exempt if they fall into one of two categories: learned or creative.  The learned professional must work in the field of science or learning customarily acquired by specialized intellectual instruction.  The primary duty of this professional must be in the area of advanced knowledge, which is predominantly intellectual and includes the consistent exercise of discretion and judgment.  The creative professional must perform work that requires invention, imagination, originality, or talent in a recognized field of artistic endeavor.  This section changed greatly from the old rules because it now has divided the professional into these two categories and removed the computer professional.
 
Computer employees , as a new category, are exempt if they make either by salary or fee more than $455 per week or $27.63 per hour respectively.  Employees in this field must work as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the field.  Primary duties must consist of application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system function specifications; the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on related to user or system design specifications; the design documentation, testing, creation or modification of computer programs related to machine operating systems; or any combination of these qualifications.
 
Outside sales employees are exempt if they make more than the mentioned standard of $455 per week (an amount not specified in the old rules).  Their primary duties must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by either the client or the customer.  These employees must be customarily and regularly engaged away from the employer's place or places of business.  This section has changed to include the salary requirement.

We will be happy to assist in helping to analyze application of the new exemption provisions.

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