AASCIF - oct-nov-dec03

Christine Nardi, PHR
Acting Vice President, Human Resources
State Compensation Fund of Arizona

Remember the term “straw bosses”? How about “legmen”? Here’s an easy one: “keypunch operators”?

The existing rules under the federal Fair Labor Standards Act may not only contain terms that are a bit antiquated, but interpreting the rules has come to involve class-action suits and a militia of lawyers because the reason behind the interpretation is often peculiar.

The U.S. Department of Labor has proposed sweeping changes to the FLSA for the first time in 50 years. The proposed revisions, if passed, will not only modernize the FLSA by providing for new and simpler exemption rules, it will lessen the perplexity, which means fewer lawsuits.

It may also mean some of your lower-paid workers may become eligible for overtime.

Proposed revisions to “white-collar” exemptions
For years the FLSA has been criticized for being complex and out of date. In its first major attempt to amend the rules in about 20 years, the U.S. Department of Labor is seeking to create many new provisions and eliminate and reorganize existing ones.

In March, DOL unveiled proposals to dramatically change the employee exception regulations of the FLSA for “white collar” workers. The proposals:

Minimum salary level increased: Under current rules, an employee earning $155 a week can qualify as a “white collar” employee exempt from, or not entitled to, overtime pay. DOL’s proposal would raise the minimum salary to $425 a week—or $22,100 annually—for each of the “white collar” exemptions. This reflects an increase of $270 a week.

In essence, this means a white-collar employee could not qualify as exempt from the minimum wage and overtime provisions of FLSA unless that employee earned a salary of at least this amount. This change alone, the DOL estimates, would convert 1.3 million workers from exempt status (not eligible for overtime) to nonexempt status (eligible for overtime).

Another key change proposed is the salary threshold for the newly defined “highly compensated employee.” Under this provision, employees paid $65,000 or more annually would qualify as exempt from the minimum wage and overtime requirements of FLSA if they perform non-manual work and have identifiable executive, administrative or professional duties in the standard duties test. To reach the $65,000 threshold, the employee’s salary, commissions, non-discretionary bonuses and other non-discretionary compensation would be totaled.

Duties tests rely on “primary duty”: The proposed rule retains the current “short test” reliance on an employee’s primary duty. The proposal eliminates the rather extensive “long test” rule restricting exempt employees from devoting more than 20 percent of their time in a workweek performing non-exempt duties.

Executive duties: The proposed test has three requirements: managing the operations, directing the work of two or more employees, and having hiring and firing authority.

Administrative duties: The proposal would replace the ambiguous “discretion and independent judgment” test, with a new test that employees must hold a “position of responsibility.”

Professional duties: The proposal recognizes as exempt employees “learned professionals;” i.e., certain employees who gain equivalent knowledge and skills through a combination of job experience, military training, attending a technical school or attending community college. Meaning: It appears that DOL’s proposal would make more employees eligible for the professional exemption.

IT professionals: The duties test for exempt computer professionals would be altered slightly. The proposed rules would consolidate and condense all of the regulatory guidance on computer occupations, which are currently scattered throughout 29 C.F.R. part 541, into a single regulatory subpart.

In addition, consistent with changes to other duties tests, the proposal deletes the additional requirements that an exempt computer employee consistently exercise discretion and independent judgment.

Equitable treatment of employees: The DOL proposals allow deductions from the salaries of exempt employees for full-day absences taken for disciplinary reasons, such as violation of a company’s sexual harassment or workplace violence policies. Currently, only hourly workers’ wages are subject to partial-day deductions.

Salary basis test: The DOL proposal does retain the “salary basis” rule that prohibits deductions from exempt salary for partial-day absences. The proposal also significantly expands the “window of correction” which allows employers to reimburse employees for improper pay deductions without destroying their salaried exempt status.

What it all means
Your organization may be forced to pay overtime pay to those who will become eligible for overtime pay based on increasing the minimum salary level. You should also be aware that revisions might affect benefit plans if exempt and non-exempt are used as criteria.

It is important to note, however, that the new rules are subject to public comment before becoming final. As of July, DOL officials were still gathering public comment on the proposed rules. The comments will then be reviewed, and the final rules will be published.

The new rules could take effect by late 2003 or early 2004.

Author Christine Nardi can be contacted at cnardi@scfaz.com or (602) 631-2086.

FLSA proposals could mean new overtime rules