Flsa white collar exemptions

The FLSA’s “White
Collar” Exemptions
(It only seems as if “FLSA”
means the “For Lawyers’
Security Act.”)
Richard G. Vernon
Lerch, Early & Brewer, Chtd.
www.lerchearly.c May 1, 2012
om

What Is Required To Be
Exempt?

SALARIED

SIMPLY
SALARIED? +
NO
EXEMPT
DUTIES

•2 © Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

The Regulations: What’s a “Salary”?

 The individual is paid a “predetermined
amount” of compensation on a regular
basis, generally weekly, bi-weekly, or bi-
monthly.
 The “predetermined amount” cannot be
reduced because of variations in the
quality of quantity of work performed, that
is, if an employee’s absence is caused by
the employer or by operating
•3 requirements of the business. (Section
© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

The Amount of the Required
Salary (Seriously)
 In order to qualify as an exempt executive,
administrative or professional employee, the
individual must be paid an annual salary of at
least $23,660. That’s at least $455 per week (or
biweekly at $910, semimonthly at $985.83, or
monthly at $1,971.66).
 Exempt computer employees need to be paid at $27.63
per hour or may be salaried in the amount stated
above.
 The compensation requirements do not apply to
lawyers , doctors, teachers and medical interns or
residents.

Highly Compensated Employees

 Employees who have a total
annual compensation of $100K or
more (not including benefits) and
who regularly perform one of
more of the exempt duties of an
executive, administrative or
professional employee (which we
•5
will discuss shortly) are exempt.

Primary Duty
 In order to qualify for one of the “white collar”
exemptions, an employee’s “primary duty” must
be the performance of exempt work.
 “Primary duty” means “the principal, main,
major or most important duty that the
employee performs.”
 Determination of an employee’s primary
duty is based on all the facts in the
particular case, with the major emphasis on
the character of the job as a whole.

Primary Duty
 Factors to be considered in determining the
primary duty include:
 The relative importance of the exempt duties,
compared with the other duties;
 The amount of time spent performing exempt work;
 The individual’s relative freedom from direct
supervision; and
 The relationship between the employee’s salary
and the wages paid to other employees for the kind
of nonexempt work performed by the employee.


Primary Duty

 The amount of time spent performing
exempt work is a useful guide in
determining whether exempt work is
the primary duty of an employee.
 However, time alone is not the sole
test, and the exempt employee is not
required to spend more than 50% of
time performing exempt work.

1. Executive Employees
 An exempt executive employee fulfills all
of the following:
 Required salary: $23,660 year/ $455 week
 Primary duty is management of the
enterprise in which the employee is
employed or of a customarily recognized
department or subdivision.
 Customarily and regularly directs the work
of two or more other employees
 Must be two full-time equivalents (FTE’s)

Executive Employees

 An exempt executive employee must
also have the authority to hire or fire
other employees or his/her
suggestions and recommendations
as to hiring, firing, advancement,
promotion or other change of status
of other employees must be given
“particular weight.”

Suggestions and
Recommendations
 Factors to be considered in determining whether an
employee’s suggestions and recommendations (“suggs
and recs”) are given particular weight include include:
 Whether it is part of the employee’s job to make
such suggs and recs,
 What is the frequency with which the employee
makes suggs and recs, and
 What is the frequency with which the employee’s
suggs and recs are relied upon.
 The suggs and recs must pertain to the employees
whom the executive regularly directs.


2. Professional Employees

 The “professional exemption”
applies to two different kinds of
employees:
 Individual whose primary duty is the performance of
work “requiring knowledge of an advanced type in a
field of science or learning customarily acquired by a
prolonged course of specialized intellectual
instruction.” (The “learned” professional exemption.)
 Individual whose primary duty is the performance of
work “requiring imagination, originality or talent in a
•12
recognized field or artistic or creative endeavor.”

Professional Exemption
 An exempt learned professional
employee receives the requisite salary
and fulfills all of the following standards:
1. The individual performs work requiring
advanced knowledge
 The work must be predominantly
intellectual and requires the consistent
exercise of discretion and judgment
 Advanced knowledge cannot be attained
at the high school level


2. The advanced knowledge is in a
field of science or learning,
including law, medicine,
accounting, engineering, various
types of physical, chemical and
biological sciences, pharmacy,
and similar occupations.
 Distinguished from the
•14 mechanical arts and skilled

3. The advanced knowledge must be customarily
acquired by a prolonged course of specialized
intellectual instruction.
 The exemption is available to employees in the
appropriate professions who have substantially
the same knowledge level and perform
substantially the same work as the degreed
employees, but who attained the advanced
knowledge through a combination of work
experience and intellectual instruction.
 Case law says this only applies to an unusual
individual, not to a particular job or group of
•15
employees. Early & Brewer, Chtd. 2012
© Lerch, www.lerchearly.com


 The exemption is not available for
occupations that may be performed
with only general knowledge
acquired by an academic degree in
any field, with knowledge acquired
through an apprenticeship or with
training in the performance of routine
processes.

 Scorecard with respect to certain specific
positions:
 Registered or certified medical
technologists
 Exempt, if appropriate education
 Registered nurses
 Exempt
 Licensed practical nurses
 Non-exempt
 Accountants
 Exempt
 Bookkeepers and Accounting Clerks
 Non-exempt

3. Administrative Exemption
 The required salary
 Primary duty of performing office or non-manual work
directly related to the management or general business
operations of the employer or the employer’s
customers.
 Primary duty includes the exercise of discretion and
independent judgment with respect to matters of
significance.
 The exercise of discretion and independent judgment
usually involves considering possible courses of
conduct and acting or making a decision after various
possibilities have been considered.

•18
Regulation identifies “discretion 2012 independent
© Lerch, Early & Brewer, Chtd.
and www.lerchearly.com

Manage-
ment or General Business
Operationsit looks
 Trickier than
 To meet the first standard of “work directly
related to management or general
business operations,” an employee must
perform work directly related to assisting
with the running or servicing of the
business, as distinguished, for example,
from working on a manufacturing
production line or selling a product in a
•19 retail or service establishment. www.lerchearly.com
© Lerch, Early & Brewer, Chtd. 2012

Directly Related to Management
or General Business Operations
 This means the employee is not
doing the work for which the
company has been established – for
example, making widgets.
 Instead, the employee assists in
getting the company’s work done.


Functional Areas
 Such work includes, but is not limited to, work in
functional areas such as tax; finance; accounting;
budgeting; auditing; insurance; quality control;
purchasing; procurement; advertising; marketing (Note:
However, selling is not included in this list.); research;
safety and health; personnel management; human
resources; employee benefits; labor relations; public
relations; government relations; computer network,
internet and database administration (Note: This is a
different, and lower, standard than exempt high level
computer employees.); legal and regulatory compliance;
and similar activities.


Discretion and Independent
Judgment – 10 Factor Test
 Ten factor test to determine discretion and independent
judgment:
 Whether the employee has authority to formulate, affect,
interpret, or implement management policies or operating
practices;
 Whether the employee carries out major assignments in
conducting the operations of the business;
 Whether the employee performs work that affects business
operations to a substantial degree, even if the employee’s
assignments are related to operation of a particular segment
of the business;
 Whether the employee has authority to commit the employer
in matters that have significant financial impact;
 Whether the employee has authority to waive or deviate from
•22 established© Lerch, Early & Brewer, Chtd. 2012without prior approval;
policies and procedures www.lerchearly.com

Discretion and Independent
Judgment
 Whether the employee has authority to negotiate
and bind the company on significant matters;
 Whether the employee provides consultation or
expert advice to management;
 Whether the employee is involved in planning long-
or short-term business objectives;
 Whether the employee investigates and resolves
matters of significance on behalf of management;
 Whether the employee represents the company in
handling complaints, arbitrating disputes or
resolving grievances


Specific Exempt Occupations
 Insurance claim adjusters
 Financial services industry employees (including
banks), but not someone whose primary duty is selling
financial products
 “Team Leaders” (who run teams of workers, though
don’t supervise; probably a limited exemption for team
leader involved in major projects)
 Executive Assistant to an owner or senior executive of
a large employer (not secretarial or clerical assistants)
 Human resources managers
 Purchasing agents

4. High-Level Computer
Employees
 Employers have a choice paying on a salary
basis (at least $455/week) or on an hourly
basis (at least $27.63/hour)
 Computer systems analysts, computer
programmers, software engineers, or other
similarly skilled workers. Their primary duty
must involve:
 The application of systems analysis techniques
and procedures, including consulting with
users, to determine hardware, software or
•25
system function Early & Brewer, Chtd. 2012
© Lerch,
specifications www.lerchearly.com

Computer Employees
 The design, development, documentation, analysis,
creation, testing or modification of computer systems or
programs, including prototypes, based on and related
to user or system design specifications
 The design, documentation, testing, creation or
modification of computer programs related to machine
operating systems.
 Manufacture and repair of computer hardware and
related equipment is not exempt work.
 No requirement to exercise discretion and independent
judgment
 Not eligible for “highly compensated” test

5. Outside Sales

 Primary duty of making sales or
obtaining orders or contracts for
services or use of facilities.
 Customarily and regularly engaged
away from the employer’s place of
business.
 No salary requirements

Exceptions Re Salary
Deductions
 Seven exceptions to the
prohibition against deductions
from pay, that is, deductions from
pay for full days missed may be
made in the following situations:


Exceptions

1. An absence for personal
reasons, other than sickness or
disability.
 Note:
If the employee is absent for a
day-and-a-half, a deduction may be
made only for the full day of absence.


Exceptions
2. An absence of one or more full days for
sickness or disability, if the deduction is made
in accordance with a bona fide paid sick leave
or vacation leave plan or policy.
Note: Deductions are also permitted before the
employee has qualified under the plan and
after the employee has exhausted his or her
available leave.
3. Offset of amounts received by an employee for
jury duty, attendance as a witness, or
•30
temporary military leave. 2012
© Lerch, Early & Brewer, Chtd. www.lerchearly.com

Exceptions

4. Penalties imposed in good faith for violations of
“safety rules of major significance.”
5. A disciplinary suspension of one or more full
days imposed in good faith for infractions of
workplace conduct rules, so long as there is a
written policy.
6. Less than a complete initial or last week of
employment.
7. Weeks in which an employee takes unpaid
FMLA leave.

Exceptions

 A secret 8th exception
 An exempt employee need not be paid
for any work week in which he/she does
not perform any work.


Correcting Improper
Deductions
 Improper deductions from salary will
invalidate an employee’s exempt status, if
the employer did not intend to pay the
employee on a salary basis. This
generally will happen only if the employer
has an “actual practice” of making
improper deductions.
 Evidence of an “actual practice” includes:
 The number of improper deductions
 The time period during which the improper deductions were made
•33  The number andLerch, Early & locationChtd. 2012
© geographic Brewer, of the employees affected.
www.lerchearly.com

Correcting Improper
Deductions
 Evidence of an “actual practice” (continued):
 The number and geographic location of managers
who made the improper deductions
 Whether the employer has a clear policy permitting
or prohibiting improper deductions
 If the employer has an “actual practice,” the
exemption is lost only during the time period in
which the improper deductions were made, and
only for employees in the same job
classification working for the same manager(s)
responsible for the deductions.

Correcting Improper
Deductions
“Safe Harbor” if an employer
 Has a clearly communicated policy that
prohibits improper deductions,
 Has a complaint mechanism,
 Reimburses employees for any improper
deductions, and
 Makes a good faith commitment to comply
 The exemption is not lost, unless
the employer willfully continues to
make improper deductions after
receiving employee complaints.

Salary Additions

 Additions to an exempt employee’s
pay generally do not invalidate a
salary basis of pay, so long as the
employee receives the guaranteed
salary as part of his or her
compensation
 Such pay may even be on an
hourly basis for the extra hours
•36 worked.© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

Proactive Measures For
Employers
 Review and revise classification of
employees
 Change low-paid supervisory
personnel and others earning less
than $455/week to non-exempt
status
 Convert misclassified employees
to non-exempt status

Employers
 Review and revise job descriptions
 Clarify and list actual duties

 Emphasize exempt duties

 Describe discretion and independent judgment, where
applicable – use as many of factors as possible
 Expressly give executives authority to hire and fire or to
make recommendations that will be given particular
weight
 Weigh and document the determination of a position’s
primary duty
 Document why workers are exempt, and under which
exemption
•38  Seek counsel for close classification issues

Employers
 Review payroll practices
 Make sure they are complying with
salary basis test.
 Train managers and payroll workers to
avoid impermissible deductions.
 Be sure anyone over $100K meets the
tests for exempt status.


Employers
 Review and revise policies and
handbooks
 To comply with salary basis test
 To allow disciplinary deductions in full day
increments
 To define the workweek
 To distinguish policies for exempt workers
from nonexempt, salaried and hourly
workers
 To add in “safe harbor” policy to allow
correction for improper deductions

Speakers
 Rick Vernon is an employment
attorney at Lerch, Early & Brewer in
Bethesda, Maryland who defends
employers against all workplace
claims made by individuals
(applicants, employees and former
employees), governmental agencies
or other organizations. These
encompass discrimination
allegations, wage and hour disputes,
EEOC complaints and sexual
(301)907-2818 harassment claims, among others.
rgvernon@lerchearly.com

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