U.S. Department of Labor, Wage and Hour Division 1

[Pages:30]The Fair Labor Standards Act: Executive, Administrative and Professional Exemptions

Wage and Hour Division U.S. Department of Labor

Fair Labor Standards Act

? Federal Minimum Wage:

$7.25/hour

? Overtime: 1 ? times the regular rate of pay for

all hours over 40 hours in a work week

"White Collar" Exemptions ? Section 13(a)(1) of the FLSA provides an

exemption from both minimum wage and overtime pay for employees who are employed in a bona fide:

Executive; Administrative; Professional; or Outside Sales capacity.

? Certain computer employees may be exempt

professionals under Section 13(a)(1) or exempt under Section 13(a)(17) of the FLSA.

U.S. Department of Labor, Wage and Hour Division

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Three Tests for Exemption ? Salary Level ? Salary Basis ? Job Duties

New Overtime Rule Overview

? March 2014 - Presidential Memorandum ? July 2015 ? Notice of Proposed Rulemaking ? May 23, 2016 ? Final Rule Published ? December 1, 2016 ? Final Rule Effective Date

New Overtime Rule Changes

? Salary Level Increases ? Nondiscretionary Bonuses ? Automatic Updates

U.S. Department of Labor, Wage and Hour Division

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New Overtime Rule Standard Salary Level and Highly Compensated Employees

? Standard salary level - pursuant to 29 CFR

541.600

Current $455

Effective 12/1/2016 $913 per week

? Highly Compensated Employee (HCE) - pursuant

to 29 CFR 541.601

Current $100,000

Effective 12/1/2016 $134,004 per annum

Salary Level

Minimum Salary Level: $913

? For most employees, the minimum salary level required

for exemption is $913 per week

? Must be paid "free and clear" ? The $913 per week may be paid in equivalent amounts

for periods longer than one week:

Biweekly: $1,826

Semimonthly: $1,978.16

Monthly:

$3,956.33

U.S. Department of Labor, Wage and Hour Division

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Nondiscretionary Bonuses ? Nondiscretionary bonuses and incentive payments

(including commissions) are forms of compensation promised in advance to employees (e.g., bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula).

? May be used to satisfy up to 10% of the standard salary

level. - Minimum of 90% (approx. $822) of standard salary level must be paid as a weekly salary.

? Payments must be paid on a quarterly or more frequent

basis.

Catch-up Payments

? If an employee does not earn enough from the

nondiscretionary bonus, commission, or incentive payments in a given quarter to meet the standard salary level ? an employer may make a "catch-up" payment within one pay period of the end of the quarter.

? Any such "catch-up" payment will count only

toward the prior quarter's salary amount and not toward the salary amount in the quarter in which it is paid.

Highly Compensated Test ? Total annual compensation of at least $134,004 ? At least $913 per week paid on a salary or fee basis ? Perform office or non-manual work ? Customarily and regularly perform any one or more of

the exempt duties identified in the standard tests for the executive, administrative or professional exemptions

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Total Annual Compensation

? Total annual compensation includes:

Commissions Nondiscretionary bonuses Other nondiscretionary compensation earned during a 52-week period

? Total annual compensation does not include:

Credit for board, lodging or other facilities Payments for medical or life insurance Contributions to retirement plans or fringe benefits

Make-Up Payment & Pro-Rating

? If an employee's total annual compensation

does not equal $134,004 by the end of the year: The employer may, within one month after the end of the year, make one final payment to reach the $134,004 level; or The employee will be tested for exemption under the standard duties tests

? The $134,004 may be pro-rated for employees

who do not work the full year

? The employer may use any 52-week period as

the year

Office or Non-manual Work

? The highly compensated test is not available for

Non-management production line workers Non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers Other employees who perform work involving repetitive operations with their hands, physical skill and energy

U.S. Department of Labor, Wage and Hour Division

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Customarily and Regularly ? A frequency that must be greater than

occasional but which, of course, may be less than constant

? Includes work normally and recurrently

performed every workweek

? Does not include isolated or one-time tasks

Automatic Updates ? Every three years beginning January 1, 2020, the

standard salary and annual compensation levels will be automatically updated.

? At least 150 days before the effective date, the Secretary

will publish a notice in the Federal Register of the updated salary and total annual compensation amounts that will be required.

Updating the Standard Salary Level Standard salary level ? updated to equal the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.

U.S. Department of Labor, Wage and Hour Division

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Salary Basis

Salary Basis Test ? Regularly receives a predetermined amount of

compensation each pay period (on a weekly or less frequent basis)

? The compensation cannot be reduced because

of variations in the quality or quantity of the work performed

? Need not be paid for any workweek when no

work is performed

Deductions From Salary ? An employee is not paid on a salary basis if

deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the businesses

? If the employee is ready, willing and able to

work, deductions may not be made for time when work in not available

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Permitted Salary Deductions

? Seven exceptions from the "no pay-docking"

rule:

1. Absence from work for one or more full days for personal reasons, other than sickness or disability

2. Absence from work for one or more full days due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences

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

Permitted Salary Deductions

? Seven exceptions from the "no pay-docking"

rule:

4. Penalties imposed in good faith for violating safety rules of "major significance"

5. Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules

6. Proportionate part of an employee's full salary may be paid for time actually worked in the first and last weeks of employment

7. Unpaid leave taken pursuant to the Family and Medical Leave Act

Improper Deductions - Examples

? Deduction for a partial-day absence to attend a

parent-teacher conference

? Deduction of a day of pay because the employer

was closed due to inclement weather

? Deduction of three days of pay because the

employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for the jury duty

? Deduction for a two day absence due to a minor

illness when the employer does not provide wage replacement benefits for such absences

U.S. Department of Labor, Wage and Hour Division

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