Significant Changes to FLSA "White Collar" Exemptions Effective August 23, 2004

 


By Anne Denecke, Mary Drobka and Cecily Fuhr

Most employers are aware by now that the U. S. Department of Labor (DOL) recently announced sweeping changes to the regulations governing the "white collar" overtime exemptions under the federal Fair Labor Standards Act (FLSA). The changes are slated to take effect August 23, 2004.

The foundation of these exemptions was established in 1938; the last significant changes to the regulations were implemented in 1949 and have remained largely unchanged (except for increasing the minimum salary levels in 1975). As a result, the DOL (bolstered by decades of public criticism) crafted the revised regulations in an effort to ensure that the FLSA more accurately reflects the American workplace today. No sooner had the revisions been announced, however, than significant national debates began over the true impact of the new rules, and in particular, whether the changes are likely to increase or reduce the number of workers eligible for overtime pay under the FLSA.  Although the U. S. House of Representatives defeated a bill previously passed by the Senate that would have protected employees who currently are eligible for overtime from losing such eligibility under the revised rules, other bills regarding the coverage or effective date of the new rules may still be introduced. Davis Wright Tremaine will notify employers if such legislation is enacted.

Although the new rules include significant changes, employers who also are covered by state wage and hour laws may not be impacted as much (or not at all, as is currently likely in California) if their state laws or regulations are more employee-favorable than the FLSA. Employers should nevertheless have a solid understanding of the key changes to the federal "white collar" exemptions, including:

         Revised "job duties" tests replacing the current "long" and "short" tests with a single "standard duties" test for each exemption.  Elimination of the "long test" means doing away with the requirement that an exempt employee can spend no more than 20 percent of his/her time (or 40 percent in retail or service establishments) performing non-exempt work. Going forward under the revised regulations, the exempt employees' primary duty (generally, 50% or more of their time) must be spent on exempt work.

o        Administrative test retains the requirement that employees exercise discretion and independent judgment on matters of significance, and adds a section on "Use of manuals" as it relates to the exercise of independent discretion and judgment. (See, 29 CFR 541. 704). 1The final rule does not include the proposed revision requiring only that employees must hold a "position of responsibility".

State Law Considerations. Employers who are covered by both the federal and state overtime laws need to follow whatever law or regulation is most favorable to employees. The chart below outlines some of the key differences between the new FLSA regulations and the current wage and hour laws in Alaska, California, Oregon, and Washington. Employers should compare the provisions of their state laws with the revised federal regulations to determine which provisions are more employee-favorable. For example, the FLSA minimum salary requirement of $455 is more employee beneficial than the current state minimum salary in all of these states except California. Therefore, employees in those states who earn less than the new minimum federal salary need to have their salary increased to preserve their exempt status under federal law. Conversely, the regulations in most states that describe exempt duties remain more favorable to employees, except for part of the revised federal executive exemption requiring such executives to have hire/fire authority or that their recommendations be given particular weight.

 

FLSA

AK

CA

OR

WA

Salary Level

$455 per wk ($23,660/yr)

Follow new FLSA minimum

$540 per wk ($28,080/yr); follow CA minimum

Follow new FLSA minimum

Follow new FLSA minimum

Duties

Single revised test for each exemption

Follow AK regs at 8 AAC 15. 910(a)(1)(7), and also comply with new FLSA hiring/firing reqmt for executive exemption

Follow CA regs in the IWC Wage Orders; see www. dir. ca. gov/iwc under "Wage Orders 1-2001 through 17-2001  

Follow OR regs at OAR 839-020-0005, and also comply with new FLSA hiring/firing reqmt for executive exemption

Follow WA regs at WAC 296-128-500 530, and also comply with new FLSA hiring/firing reqmt for executive exemption

Highly- compensated employees

Employees paid $100,000/yr exempt if meet streamlined duties test

No similar exemption; don't use unless AK adopts similar exemption

No similar exemption; don't use unless CA adopts similar exemption

No similar exemption; don't use unless OR adopts similar exemption

No similar exemption; don't use unless WA adopts similar exemption

"Safe Harbor"

Broader federal "window of correction" for employer if improper deductions made

Implement Safe Harbor personnel policy to obtain federal protection, although not guaranteed "safe harbor" under AK law. AK adheres to FLSA in absence of applicable state regs

Implement Safe Harbor personnel policy to obtain federal protection, although not guaranteed "safe harbor" under CA law. Follow CA requirements on permissible salary deductions

Implement Safe Harbor personnel policy to obtain federal protection, although not guaranteed "safe harbor" under OR law. Follow OAR 839-020-0004(30) regulations on permissible salary deductions

Implement Safe Harbor personnel policy to obtain federal protection, although not guaranteed "safe harbor" under WA law.  Follow WAC 296-128-532 regulations on permissible salary deductions

Permissible salary deductions

Now allows full-day deductions for unpaid suspension based on violation of any conduct rules, and for violations of major safety rules, and full or part-day deductions for unpaid FMLA

No similar provision; AK adheres to FLSA in absence of applicable state regs

No similar provision; don't use unless CA adopts similar deduction

No similar provision; don't use unless OR adopts similar deduction. Full day salary deduction allowed only for absence for personal reason other than illness; full and part day deductions allowed for unpaid FMLA  

No similar provision; don't use unless WA adopts similar deduction. Full day deductions for unpaid suspension allowed only for violations of major safety rules; full and part day deductions allowed for unpaid FMLA

Even though employers covered by state law cannot take advantage of some (or any of the changes, as is likely in California) of the revised FLSA regulations, employers should nevertheless audit their wage and hour practices to determine what changes may be necessary to comply with both laws. This is particularly true given the fact that although California may not make changes to current state requirements, it is unclear whether Alaska, Oregon, and/or Washington will revise their respective rules to fall in line with the new federal regulations. An employer that undertakes this audit well in advance of the scheduled effective date of the new rules will significantly minimize its risk of non-compliance either with their state's laws and regulations or the new federal regulations.