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lrgal fix.its compensation
by Susan Ellingstad
Did August 23, 2004, come and go before you were able to conduct an audit of your workforce?
Employers must ensure that all employees are properly classified as exempt or nonexempt under the new Fair Labor Standards Act (FLSA) regulations. They may have to change classifications, job descriptions and payroll practices accordingly, and implement new employment policies.
If you missed the deadline, not to worry. Better late than never. Here is what you need to do to bring your business into compliance with the final overtime regulations under the FLSA.
The FLSA requires employers to pay their employees a minimum wage of $5.15 per hour and overtime pay of one and one-half times an employee’s regular rate of pay for hours worked over 40 in a workweek. Exempt from the overtime requirements are employees classified as executive, administrative and professional.
Major changes
Minimum salary: To qualify as exempt from overtime under the new regulations, an employee must be paid on a salary basis, as opposed to by the hour, at the rate of $455 per week (or $23,660 annually).
Prior to the new regulations, an employee could earn as little as $155 per week to qualify for some exemptions from overtime. The new rules ensure eligibility for overtime pay to all employees earning less than $455 per week regardless of the duties they perform.
Highly compensated employees: If an employee is a “highly compensated employee,” or paid at least $100,000 per year, the employee must “customarily and regularly” perform only one of the job duties of an exempt administrative, executive or professional employee (described below) in order to be exempt from overtime requirements under the new rules.
Deductions from salary: The revised regulations significantly expand an employer’s right to reduce pay for disciplinary suspensions without jeopardizing the exempt status. Previously, exempt employees could not be suspended for less than a week except for serious safety rule violations. Under the new regulations, an employer can suspend exempt employees for one or more full days for violating written workplace rules, such as sexual harassment or workplace violence policies.
Who’s exempt?
In addition to being paid on a salary basis, an employee’s duties must fall under one of the three exempt classifications to be exempt from overtime requirements. Unlike the former maze of tests, the new regulations set forth a “primary duty” test for each classification.
Executive exemption: To qualify for the executive exemption, an employee must be paid a salary of at least $455 per week and:
• the employee’s primary duty must be to manage the enterprise or a department or subdivision of the enterprise; the employee must regularly direct the work of at least two or more other full-time employees; and
• the employee must have the authority to hire or fire other employees, or the employee’s recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given “particular weight.”
Any employee who owns at least a 20 percent equity interest in the business and is actively engaged in management is automatically classified under the executive exemption.
Administrative exemption: To qualify for the administrative exemption, the employee must be paid a salary of at least $455 per week and primary duties must include: the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and the exercise of discretion and independent judgment with respect to matters of significance.
Professional exemptions: There are two categories of exempt “professional” employees: learned professionals and creative professionals.
To qualify for the learned professional exemption, the employee must be paid a salary of at least $455 per week and perform work that is predominantly intellectual in character and requires the consistent exercise of discretion and judgment, and requires knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.
To qualify for the creative professional exemption, the employee must primarily perform work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
The biggest change to the learned professional exemption is the emphasis on advanced knowledge. This knowledge must typically be obtained through specialized academic training which is a standard prerequisite for the profession. The professional exemption does not apply to jobs where most employees acquired their knowledge by on-the-job training.
Under the new regulations, registered nurses, accountants and editorial writers qualify as exempt professionals, while bookkeepers, reporters and paralegals do not.
Other exemptions: In addition to the above categories, the FLSA also exempts from overtime pay outside sales employees who are customarily and regularly engaged away from the employer’s place of business, as well as certain computer employees such as computer systems analysts, computer programmers, and software engineers.
State gets in the act
Employers that produce or handle goods for interstate commerce and that have gross annual sales of more than $500,000, as well as federal, state and local agencies, are subject to the federal FLSA.
Those employers who do not meet these criteria, however, are governed by the Minnesota Fair Labor Standards Act. The Minnesota statute closely tracks the current FLSA, with long and short salary and duties tests.
Employers must be aware of the possibility that both statues could apply and therefore should comply with the higher standard. Employers subject to the Minnesota FLSA should first analyze their employees under the new federal regulations.
The Minnesota Department of Labor and Industry provides guidelines for employers at www.doli.state.mn.us
How to comply
If some employees no longer qualify as exempt because they are paid below the minimum salary level, you must either treat those employees as nonexempt and pay them overtime, or raise their salaries to at least $455 per week, assuming that the worker’s duties qualify under one of the three exemptions.
• Ensure proper payroll practices. You should check not only salary levels, but also for partial-day salary deductions and other violations of the salary basis test. A well-trained payroll administrator will avoid improper wage deductions that could cost you the exempt status.
• Analyze employees’ job titles and duties to ensure proper classification. Under the new rules, more employees may be eligible for exempt status than under the former rules. This is also an opportunity to correct past errors or misclassifications.
• Revise job descriptions. To ensure that the job descriptions accurately reflect the classification, you would be well advised to use some of the actual terminology from the regulations, where appropriate, in the revised job descriptions. You should also identify the employee’s “primary duty” in each position.
• Revise your policies and handbooks. The DOL created a “safe harbor” provision that can insulate employers from liability for improper deductions if they establish clear policies for wage deductions.
[contact] Susan Ellingstad is a partner who specializes in employment law at Lockridge Grindal Nauen in Minneapolis: 612.339.6900; se**********@*****aw.com; www.locklaw.com
