Department of
Labor proposes broad revision of 'white collar' overtime exemptions
By G. Phillip Shuler
The United States Department of Labor
(DOL) has proposed extensive revisions of its regulations
implementing the "white collar" exemptions to the
overtime requirements of the Fair Labor Standards Act (FLSA).
The proposed revisions raise the minimum salary to qualify
for exemption to $425 per week, and simplify the "duties"
test for each of the exemptions. The DOL estimates the regulations
will affect 6.5 million establishments totaling 110 million
employees in the administrative, executive and professional
employee classifications.
Wage and Hour Administrator McCutchen has cited three factors
in predicting the Bush administration may have a better shot
at modernizing the rules. These are:
- the increase in wage-hour collective actions charging
employers with misclassifying their employees and resulting
in significant overtime settlements for members of the large
groups
- internal support for change from professionals within
the Wage and Hour Division who agree that the regulations
are "vastly overdue for revision"
- the fact that, with few exceptions, the regulations
are essentially 50 years old and do not reflect the realities
of the modern-day workplace.
Exemptions affected. The proposed
regulations revise the traditional executive (supervisory),
administrative and professional exemptions.
The current regulations have two tests for each such exemption
- a "short" test with a minimum salary of $250 per
week and specified duties and responsibility, and a "long"
or "upset" test with a lower weekly salary requirement
($155 for the executive and administrative exemptions, $170
for the professional exemption) and more extensive duty and
responsibility requirements. The proposed regulations replace
these tests with a single minimum salary of $425 per week,
and a short duties test for each exemption.
The proposed regulations also revise the "outside sales"
and computer employee exemptions. DOL proposes to eliminate
the twenty percent (20 percent) limitation on nonexempt work
by outside sales persons. It proposes to simplify the current
confusing regulations with respect to computer employees by
implementing a single test requiring specified primary duties
and either a minimum salary of $425 per week or $27.63 per
hour.
Proposed executive exemption. The
proposed regulations provide that to qualify for the executive
exemption an employee must be compensated on a salary basis
at a rate of not less than $425 per week, with a primary duty
of management of the enterprise or a customarily recognized
department or subdivision of the business. The employee must
customarily and regularly direct the work of two or more employees
and must have the authority to hire, fire or make suggestions
or recommendations concerning hiring, firing, advancement, promotion
or other change of status which are given particular weight.
The proposed regulations would recognize as exempt any employee
who owns at least 20 percent of the enterprise in which he
or she is employed, regardless of salary. They continue the
"sole charge" provision under which the senior employee
with authority to direct the work of other employees and to
make decisions concerning day to day operations of an establishment
is exempt regardless of the percentage of nonexempt work performed.
While DOL proposes to apply the $425 per week salary test
to "sole charge" executives, it invites comment
on whether the salary level and/or salary basis requirements
should be eliminated.
Proposed administrative exemption. Acknowledging
that the current duties test for administrative employees is
the most difficult of all the duties tests to apply, DOL proposes
to replace the existing test with the requirement that the employee
have a "position of responsibility" with the employer.
The employee must be paid at least $425 per week on a salary
or fee basis and must have a primary duty of performing office
or non-manual work related to the management or general business
operations of the employer or the employer's customers.
The proposed regulation lists illustrative types of work that
meet this requirement: tax, finance, accounting, auditing,
quality control, purchasing, procurement, advertising, marketing,
research, safety and health, personnel management, human resources,
employee benefits, labor relations, public relations, government
relations, and similar activities. DOL invites comments regarding
other areas that should be included in the list.
Proposed professional exemption. The
proposed regulations for the professional exemption raise the
salary or fee requirement to $425 per week. The duties test
for learned professionals is modified by eliminating the confusing
"consistently exercises judgment and discretion" requirement,
and by permitting work experience as well as education to be
taken into account in determining whether an employee's primary
duty is in a field of knowledge of an advanced type. The duties
test for creative professional employees remains essentially
the same as the current short test - the employee must have
the "primary duty" of "performing work requiring
invention, imagination, originality or talent in a recognized
field of artistic or creative endeavor."
New "highly compensated employee"
exemption. The proposed regulations create a new "streamlined"
rule for employees paid $65,000 or more annually who perform
office or non-manual work. Those employees are exempt if they
perform any one or more of the duties or responsibilities of
an executive, administrative or professional employee.
Salary test. The current requirement
that an exempt employee's salary not be subject to deduction
for lack of work or for most absences remains largely intact.
The proposed regulations permit deductions for unpaid disciplinary
suspensions of a full day or more for infractions of workplace
conduct rules. Currently, an employer may deduct for disciplinary
suspensions imposed for serious safety infractions.
Conclusion. The full text of the
proposed regulations and charts comparing the present and proposed
tests are available on the DOL's web site, www.dol.gov.
Editor's Note: G. Phillip Shuler
is a partner in the New Orleans office of Chaffe, McCall,
Phillips, Toler & Sarpy.
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