White-Collar Exemptions Effective Aug. 23

White-Collar Exemptions Effective Aug. 23

Saul, Karen

Make sure human resource employees are trained on the changes.

“THE MORE things change, the more they stay the same.” This adage aptly describes the Labor Department’s final regulations defining white-collar exemptions established in the Fair Labor Standards Act (FLSA) for executive, administrative, professional, outside sales, and computer employees.

The final regulations, slated to take effect Aug. 23, retreat significantly from some of the gains dangled before employers in the proposed regulations issued in March 2003. The Labor Department says the new regulations seek “to restore the overtime protections intended by the FLSA,” noting that the failure to update them earlier resulted in the protections becoming “severely eroded.”

The agency predicts 1.3 million exempt white-collar workers will gain overtime protection (i.e., lose exempt status) under the new regulations.

Overall, the final regulations still post an improvement over the antiquated rules that have been in place for decades. The new exemption for “highly compensated” employees survived, although the salary test was raised to $100,000 per year (with a minimum weekly salary of $455) from the proposed $65,000 annual level. And the final rule clarifies that these employees must “customarily and regularly” perform exempt duties.

The limitation of liability for improper salary deductions remains if certain policies and practices are adopted to avoid FLSA violations. Credit unions should jump at this opportunity to protect themselves by adopting policies that prohibit improper pay deductions, provide a complaint mechanism, require reimbursement for improper deductions, and express a good-faith commitment to comply with wage and hour laws in the future.

The final rules also expand the circumstances when employers lawfully can make salary deductions without destroying an employee’s exempt status. Full-day suspensions without pay are allowed under some circumstances.

Other differences between the proposed and final regulations involve the minimum weekly pay level required to satisfy the salary test for the executive, administrative, and professional exemptions. This amount increased from the proposed level of $425 to $455 (an annualized salary of $23,660). It’s almost triple the $155 federal threshold in effect since 1975.

The final regulations also change the duties tests for various exemptions, although changes to the administrative exemption may be of greatest interest to credit unions. Administrative employees must have a primary duty of office or nonmanual work directly related to the management or general business operations of the employer or its customers. The final rule eliminates the references to “position of responsibility” and “high level of skill or training,” which were in the proposed rules. Instead, the test retains the existing requirement that administrative employees must exercise discretion and independent judgment with respect to matters of significance.

The new rules provide that financial service industry employees “generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments, or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing, or promoting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption” (29 CFR 541.203 [b]).

Take steps to ensure compliance with the new regulations: Educate human resource employees about the changes; ensure exempt positions meet the new duties and salary tests; and adopt the policies and procedures necessary to use the safe harbor rules for improper salary deductions. Conduct an audit of payroll practices because media coverage of this subject has heightened employee awareness of wage and hour laws.

The new regulations clarify that FLSA provides minimum standards that may be exceeded but can’t be waived or reduced. Employers must continue to comply with state laws providing additional worker protections, such as a higher minimum wage or tighter restrictions on the duties exempt employees perform.

KAREN SAUL is a shareholder at Farleigh, Wada & Witt, Portland, Ore. Her practice focuses on employment law and related litigation. Contact her at ksaul@fwwlaw.com.

Copyright Credit Union National Association, Inc. Aug 2004

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