Legal Officers Section

2005 IACP Conference

Miami, Florida

September 24, 2005

 

The Fair Labor Standards Act

Updates

 

Jack Collins

General Counsel

Massachusetts Chiefs of Police Association

www.masschiefs.org

 

JackMCOPA@aol.com

 


 

This outline was pasted from the text and non-displayed author notes in a PowerPoint presentation.

 

The Fair Labor Standards Act:

Executive, administrative and professional exemptions

 

• “White Collar” exemptions

 

Exempt from both minimum wage and overtime pay

 

• Executive

• Administrative

• Professional

 

Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees.  Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees.

 

Three tests for exemption

 

• Salary level

• Salary basis

• Job duties

 

To qualify for exemption, employees must meet three tests for each exemption: An exempt employee must earn a minimum amount.  The minimum amount must be paid on a salary basis.  In addition, exempt employees must perform certain executive, administrative or professional job duties set forth in the regulation.

 

For most employees, 455 per week

“Free and clear”

 

Ok to pay for periods longer than one week:

 

Biweekly:        $910

Semimonthly:  $985.83

Monthly:          $1,971.66

 

The minimum salary level required for exemption is $455 per week,  which must be paid “free and clear” - that is, the $455 can not include the value of any non-cash items that an employer may furnish to an employee, like board, lodging or other facilities (for example, meals furnished to employees of restaurants).  For employers that have adopted pay periods longer than one week, the equivalent of the $455 per week salary level is $910 for biweekly pay periods; $985.83, for semimonthly pay periods; and $1,971.66, for monthly pay periods.

 

Highly Compensated Test

 

• At least $100,000

• At least $455 per week

• Salary or fee basis

• Office or non-manual work

• Perform exempt duties of

• Executive,

• Administrative, or

• Professional

 

• The regulations also recognize that highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more, which must include at least $455 per week paid on a salary or fee basis, are exempt if they customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

 

• In addition to the minimum salary level, an exempt employee also must be paid on a salary basis.

 

  - Predetermined amount each pay period

  - No quality or quantity reductions

  - Full salary for any week performs any work

  - Not week when no work is performed

 

• Generally, “salary basis” means that an exempt employee must regularly receive, each pay period and on a weekly or less frequent basis, a “predetermined amount” of compensation that cannot be reduced because of variations in the quality or quantity of work performed.  But for a few identified exceptions, the exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.  However, exempt employees need not be paid for any workweek when they perform no work.

 

Permitted salary deductions

 

1. Full days for personal reasons

   » other than sickness or disability

 

2. Full days due to sickness or disability

   » if receive sick or disability pay

 

3. Offset amount for jury fees, witness fees, or military pay

 

4. Violating major safety rules

 

5. Suspension of one or more full days for workplace conduct rules

 

6. Time not actually worked in the first and last weeks of employment

Unpaid leave under Family and Medical Leave Act

 

• The regulations contain seven exceptions to this salary basis, “no pay-docking” rule.  Employers may make deductions from salary of exempt employees in the following situations:

 

• An absence from work for one or more full days for personal reasons, other than sickness or disability

 

• An absence from work for one or more full days due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences

 

• To offset any amounts received as payment for jury fees, witness fees, or military pay

 

• Penalties imposed in good faith for violating safety rules of “major significance,” such as “no smoking” rules in explosive plants, oil refineries and coal mines

 

• Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules, such as rules prohibiting sexual harassment or workplace violence

 

• Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment

 

• Unpaid leave under the Family and Medical Leave Act

 

Improper deductions

 

• Partial-day absence to attend a parent-teacher conference

• Three day’s jury duty

• Rather than offsetting jury pay

• Out sick

• No sick leave provided

 

Effect of improper deductions

 

• Loss of exemption:

 

  - during time improper deductions  made

  - employees in the same job classifications

  - working for the same managers responsible for improper deductions

 

• not isolated or inadvertent improper deductions

   - if reimburse the employee

 

Actual practice

 

Factors include:

 

• The number of improper deductions

• The time period

• The number and location of employees and managers responsible

• Clearly communicated policy

 

A key term here is actual practice.  Factors considered when determining an actual practice include, but are not limited to: the number of improper deductions; the time period during which the employer made improper deductions; the number and geographic location of both the employees whose salaries were improperly reduced and the managers responsible for making the improper deductions; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

 

Safe harbor

 

• Exemption not lost if:

 

  - clearly communicated policy, including complaint mechanism;

  - reimburse for any improper deductions; and

  - good faith commitment to comply unless willfully violates after receiving employee complaints

 

The regulations provide a safe harbor for employers who have a clearly communicated policy prohibiting improper deductions.  If an employer (1) has such a clearly communicated policy which prohibits improper deductions and includes a complaint mechanism, (2) reimburses employees for any improper deductions, and (3) makes a good faith commitment to comply in the future, then the employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints.

 

Clearly communicated policy

 

• Written policy distributed to employees :

 

  - at the time of hire

  - employee handbook

  - employer’s intranet

 

The best evidence of a clearly communicated policy is a written one distributed to employees before the improper pay deductions occur, for example, by providing a copy of the policy to employees when they are hired, publishing it in an employee handbook or distributing it to employees over the employer’s Intranet.

 

Not violations

 

• Deductions from accrued leave

• Requiring tracking hours worked

• Requiring specified schedule

• Across-the-board schedule changes

 

A number of common payroll and record-keeping practices are allowed that do not call into question whether someone is paid on a salary basis.  For example: taking deductions from exempt employees’ accrued leave accounts; requiring exempt employees to keep track of and record their hours worked; requiring exempt employees to work a specified schedule; and implement bona fide, across-the-board changes in schedules.

 

Additional compensation

 

• OK to pay:

  - Commissions

  - Bonuses

  - For hours worked beyond the normal workweek

 

Another common question that arises is whether exempt salaried employees may be paid additional compensation, without affecting their exempt salaried status.  An employer may provide additional compensation besides the minimum guaranteed salary to an exempt employee without losing the exemption or violating the salary basis test, as long as the employment arrangement includes a guarantee that at least the minimum $455 weekly amount will be paid on a salary basis. 

 

For example, an exempt employee guaranteed at least $455 each week on a salary basis may also receive additional compensation for working beyond the normal workweek, which may be paid on any basis such as a flat sum, bonus payment, a straight-time hourly amount, time and one-half, or any other basis, and can include paid time off.  Similarly, the exemption is not lost if an exempt employee who is guaranteed at least $455 each week on a salary basis also receives additional compensation in the form of commissions on sales or a percentage of the profits.

 

Review

 

• Minimum salary level: $455 per week

• Highly compensated: $100,000 per year

• Salary basis:

- Predetermined amount paid for every week in which the employee performs any work, which is not subject to reduction because of variations in the quality or quantity of work performed

 

Let’s take a few minutes to review the salary requirements for exemption.  To qualify as exempt, most employees must be paid at least $455 per week on a salary basis.  Generally, an exempt employee paid “on a salary basis” must regularly receive a predetermined amount each pay period, which is not reduced due to variations in the quality or quantity of work performed. 

 

While exempt employees do not have to be paid for any workweek when they perform no work, except for a few identified permissible exceptions, exempt employees must generally receive their full predetermined salary for any week in which they perform any work regardless of the number of days or hours worked. 

 

Certain highly compensated “white collar” employees performing office or non-manual work and paid total annual compensation of $100,000 or more, if it includes at least $455 per week paid on a salary or fee basis, may be exempt if they customarily and regularly perform at least one of the exempt duties or responsibilities in the standard tests for exemption as an executive, administrative, or professional employee.

 

Executive duties

 

In addition to the salary requirements, exempt employees must perform executive, administrative or professional duties set forth in the regulations.  The next section discusses the duties requirements for the executive exemption.

 

• Management

• Directs two or more employees; and

• Hire or fire authority

  - or suggestions given particular weight.

 

In addition to the salary requirements, the executive exemption applies only if the following three duties requirements are met: 

 

1)     the employee’s primary duty must be management;

 

2)     the employee must customarily and regularly direct the work of two or more employees; and

 

3)     the employee must have the authority to hire or fire other employees, or have her suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status be given particular weight. 

 

 Review

 

• Executive exemption duties requirements:

  - primary duty - management;

  - customarily and regularly directs the work of two or more other employees; and

  - authority to hire or fire

            - or recommendations given particular weight.

 

I want to end this section with a brief review of the executive duties requirements.  The executive exemption is available only if, in addition to meeting the salary requirements, the employee’s primary duty is management; the employee customarily and regularly directs the work of two or more employees; and the employee has the authority to hire or fire other employees, or has her recommendations be given particular weight. 

 

Administrative duties

 

• Office or non-manual management; and

 

• Discretion and independent judgment

 

In addition to the salary requirements, the administrative exemption applies only if: the employee’s primary duty is 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 employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. These elements contain a number of important terms that are defined in the regulations.  Let’s look at them.  We have already discussed the definition of “primary duty”.

 

Discretion and independent judgment

 

• Comparison and evaluation of possible courses of conduct, and acting or making a decision

 

• Exercised re: “matters of significance,”

 

• Occassionally reviewed, revised or reversed

 

Exercising “discretion and independent judgment” generally involves an employee comparing and evaluating possible courses of conduct, and acting or making a decision after the various possibilities have been considered.  The term “matters of significance” refers to the level of importance or consequence of the work performed.  In determining whether or not an employee exercises discretion and independent judgment, all the facts involved in the particular employment situation must be considered.  The term implies that the employee has authority to make an independent choice, free from immediate direction or supervision.  However, employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed, and occasionally reversed, at a higher level.

 

Non-exempt positions

 

• Public sector inspectors or investigators

 

In contrast, employees who generally do not qualify as exempt administrative employees include: employees performing ordinary inspection work involving well-established techniques and procedures; examiners and graders who perform work involving comparison of products with established standards; comparison shoppers who merely report the prices at a competitor’s store; and public sector inspectors or investigators.

 

Review

 

• Primary duty of 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

 

• Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

 

I want to end this section with a brief review of the duties requirements for the administrative exemption.  The administrative exemption is available only if the employee’s primary duty is performing work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

 

For more information

 

www.dol.gov/fairpay

• e mail: fairpay@dol.gov

• 1-866-4US-WAGE 

Wage and Hour Division

Employment Standards Administration

U.S. Department of Labor

http://www.dol.gov/esa/regs/compliance