Are you prepared to meet the requirements of this law?

Bose McKinney & Evans, together with the Indiana Manufacturers Association, is presenting the Guide to Wage and Hour Issues on May 3, 10, and 17. Presented as three one-hour interactive online sessions, these informative webinars will provide you with up-to-date information about complying with both federal and state wage and hour laws. Click here to learn more or to register.

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Wage/Hour White Collar Exemption Compliance Tips
by David L. Swider and Sandra Perry

The Department of Labor (DOL) implemented broad changes to the regulations governing “white-collar exemptions” from the Fair Labor Standards Act overtime rules effective August 23, 2004. Those changes increased the minimum salary levels for the executive, administrative, and professional exemptions to $455 per week. At the other end of the salary spectrum, the DOL introduced an exemption for highly-compensated employees who earn at least $100,000 per year and perform one or more of the exempt functions identified in the executive, administrative, and professional exceptions. 

The Standard Duties Test
In revising the white-collar exemption regulations, the DOL streamlined the duties test by replacing the “long” and “short” tests under the old regulations with a single “standard duties” test for each exemption. Under the executive test, this new rule requires more than direct supervisory responsibility for two or more employees and contains the additional requirement that executive exempt employees have actual authority to hire, fire, or make decisions regarding changes in employee status, or that their recommendations in that regard be afforded “particular weight.” With respect to the administrative exemption, the revised regulations retain the requirement that the employee exercise discretion and independent judgment but added that it must be exercised with “respect to matters of significance.” “Matters of significance” refers to the level of importance or consequence of the work, and an employee does not meet this criterion merely because the employer will experience financial losses if the employee fails to perform his job properly. The new rules pertaining to the professional exemption provide that employees who have substantially the same level of knowledge and perform substantially the same work as their degreed counterparts may be considered professionally exempt even though they acquired that knowledge through work experience and intellectual instruction rather than through a specialized, prolonged course of study. 

Safe Harbor
A welcome addition to the regulations is a “safe harbor” provision intended to minimize the impact of making improper deductions from an exempt employee’s salary. This regulation provides a short time period during which an employer may rectify any improper deductions and is applicable only if: (1) the employer has a clearly communicated policy prohibiting improper deductions, which contains a complaint mechanism; (2) the employee is promptly reimbursed for the improper deduction; and (3) the employer makes a good faith commitment to comply in the future. The revised regulations also contain a new permissible salary deduction allowing employers to suspend exempt employees for one or more full days in connection with workplace conduct rule violations. Thus, for example, an employer may impose a three-day unpaid suspension on an exempt employee for violation of its sexual harassment policy. 

Next Steps
In light of the revised exemption standards, employers should take a few basic but important steps. They should evaluate the actual job duties of those employees they currently classify as exempt and be able to support why a white-collar exemption applies to those particular jobs. Employers who determine that they are paying less than $455 per week to employees whose job responsibilities satisfy the duties tests of the exemptions need to be aware that those positions will lose exempt status unless the salary is increased to at least the new minimum salary level. Accordingly, in such situations the employer must decide whether to raise the salary level for the position or reclassify it as nonexempt. As a matter of good business practice, employers also need to review their pay practices to ensure that they are not making improper deductions from the pay of exempt employees and are paying their non-exempt employees appropriate rates for all hours worked. Finally, to be eligible for the new safe harbor, employers should develop a written policy and disseminate it to all employees advising them to report any improper wage deductions to management so that the company has the opportunity to review and correct any errors.