The US Department of Labor’s Fair Labor Standards Act (FLSA)

1. The US Department of Labor’s Fair Labor Standards Act (FLSA)

2. Fair Labor Standards Act (FLSA) • A Department of Labor Regulation • Compliance is mandatory • Non-compliance exposes the employer to substantial financial risk

3. Immediate Importance • New FLSA regulations have been issued which will impact many employers • Compliance date = August 23, 2004 • The new regulations will make it more difficult to qualify for exempt status (exempt from the overtime provisions) by: • Requiring higher minimum salary • Providing narrower definitions of exempt work • Specifying types of work that must be nonexempt and subject to overtime pay

4. Employee Protection Act • The FLSA is an Employee Protection Act that establishes: • Minimum Wage • Overtime Pay • Record Keeping • Equal Pay • Child Labor Standards

5. Employee Protection Act • Requires that employees be paid for overtime hours worked at a rate of 1 ½ times their regular rate of pay (unless the employee is exempt from the provision) • Defines overtime as over 40 hours worked in a work week • Requires significant record keeping for compliance

6. Employee Protection Act • Employees are generally presumed nonexempt and entitled to overtime pay • Exemptions for executive, administrative, professional, outside sales, and computer employees are narrowly construed

7. Exempt Status and the Three Tests (All 3 tests must be met) • Exempt status is determined by the particular duties an employee performs and the way he/she is paid. • Three Tests • Salary basis test • Salary level test • Duties test

8. “Salary Basis” Test • Employee must receive a predetermined, fixed salary that is not subject to reduction due to variations in quality or quantity of work performed (except for some very narrow specified circumstances)

9. Salary Level Test • Employee must be paid at least $455 per week ($23,660 annually) • Salary level is not pro-rated for part time employment • Salary level test does not apply to limited professions, such as teachers

10. Duties Test • Employee must perform the duties specified in one or more of the exemptions • Employees must meet all prongs of the applicable exemption test

11. Executive Exemption • Employee must: • Have primary duty of managing the enterprise of a recognized department or subdivision AND • Direct the work of two or more full-time employees AND • Either have authority to hire/fire or have his/her recommendations on hiring, firing, advancement, promotion, or any other change of status of employees be given particular weight

12. Administrative Exemption • Employee must have primary duty: • Of performing work “directly related to the management or general business operations” of the employer AND • That requires employee to exercise “discretion and independent judgment” with respect to “matters of significance” • “Directly related” includes assisting with running or servicing of the business (i.e. advisors to management)—not implementing/performing work such as assisting customers and implementing processes • “Discretion and independent judgment” includes the power to make independent choices free from immediate direction (supervisory and procedural standards)

13. Academic Administrative Exemption • Applies to employees who have primary duty of performing “administrative functions directly related to academic instruction or training in an educational establishment or a department or subdivision thereof” • Includes work related to academic operations and functions (E.g., assistants responsible for administering curriculum, instruction quality/methods, measuring/testing learning potential and achievement of students, etc.) • Excludes jobs that relate to areas “outside the educational field” (E.g., jobs relating to health of students; social workers and psychologists, and enrollment counselors who engage in general outreach and recruitment efforts)

14. Learned Professional Exemption • Employee’s primary duty must be performance of “work requiring advanced knowledge” • “Advanced knowledge” must be in a field of science or learning (such as law or medicine) AND must be customarily acquired by a prolonged course of specialized intellectual instruction (the academic training must be a standard prerequisite for the profession) • Predominantly intellectual work that includes consistent exercise of discretion and judgment

15. Other Professional Exemptions • Creative Professionals must: • Have primary duty of performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor • Not be engaged in routine mental, manual, mechanical, or physical work • Teachers • Have a primary duty of teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge in an educational establishment

16. Computer Exemption • Employee must have primary duty of: • Applying systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional specifications OR • Designing, developing, documenting, analyzing, creating, testing, or modifying computer systems or programs, including prototypes, based on or related to user/system design specifications OR • Designing, documenting, testing, creating, or modifying computer programs related to machine operating systems OR • Performing a combination of these duties • Can be paid on a salary or fee basis OR at least $27.63 per hour

17. Jobs that Cannot Qualify for Exempt Status • Exemptions do not apply to: • Manual laborers and “blue collar” workers • Public safety employees (with narrow exceptions for certain high-level positions)

18. Impact • Some employees currently classified as exempt may need to be changed to overtime eligible

19. Clearer Guidance on Exemptions • Changes in FLSA Duties Test criteria: • Working supervisors generally do not qualify under the Executive Test • Those qualifying under the Executive exemption must manage a “recognized department” and have authority to hire/fire or make recommendations of significant weight to hire, fire, and promote employees • Those qualifying under the Administrative exemption must, as a primary duty, exercise independent judgment with respect to matters of significance

20. In Summary… • To qualify for exempt status, the new FLSA regulations: • Require a significantly higher minimum weekly salary • Specify narrower definitions of exempt work

21. Employer Responsibilities • Determine what positions do not meet FLSA exemption criteria (Analysis will take place in early Fall) • Ensure that employees receive fair payment for services, including overtime pay

22. For more information… • Check the Department of Labor website: http://www.dol.gov/