In August 2004, the Department of Labor’s (DOL) long-awaited, and often hotly debated, new regulations designed to update and clarify the Fair Labor Standards Act (FLSA) became effective. Culminating an effort begun in March 2003, the DOL action was proposed in an effort to update many outdated aspects of FLSA, as well as to increase the ease for employers, as well as the DOL itself, to properly interpret and apply the regulations of this Act. Despite a dramatically changed economy since its original adoption in 1938, FLSA regulations had previously remained largely unchanged.
As a brief refresher, the FLSA regulates employment in three primary areas:
The FLSA generally requires employers to pay employees at least the federal minimum wage for all hours worked, and overtime premium pay of time-and-one-half the regular rate of pay for all hours worked over 40 in a single workweek. However, the FLSA includes a number of “white-collar” exemptions from the overtime requirements, such as employees qualified as “administrative,” “executive,” “professional,” and “outside salesman.” Understanding and properly applying the often-unclear definitions for these exemptions has historically been a source of much confusion for all affected parties, spawning a continuous flow of DOL penalties, assessments and related lawsuits.
The new DOL regulations were developed and implemented in an effort to provide much-needed clarification as to which employees are eligible for exempt status. The minimum Federal hourly wage rate (currently $5.15/hour), requirement to pay overtime to non-exempt employees, and child labor provisions were unaffected by these changes.
Under existing FLSA regulations, there are three requirements for an employee to be considered exempt from overtime – all three of which must be satisfied. They are:
The salary basis test remains essentially unaffected; the primary impact of the regulation changes is in the salary level test and the duties test. Among the most significant changes are:
Recent surveys by human resource organizations indicate that the vast majority of organizations expect the new regulations will have little effect on current exempt classifications or pay levels. The impact on any organization, however, will be dependent upon the make-up of its employee pool and the level of previous effort to understand the provisions of FLSA and correctly apply them. For example, in analyzing the impact of the regulations, the DOL estimates that 1.3 million workers – primarily in the retail and fast-food sectors, and often in the rural South – will need reclassification from exempt to non-exempt. However, one revision/clarification in the duties tests may also lead to certain employees in these same sectors being classified as exempt, under the “concurrent performance” principle, which eliminates disqualification due solely to performing non-exempt work concurrent with otherwise-qualifying exempt work.
Will the revisions provide clarity and overall simplification? The jury is still out, but the hope by many is that the regulations will make the exempt classification of jobs, and related compliance with FLSA, easier on all concerned.
Connie Elder Carrigan is an accomplished attorney with a passion for helping clients, individuals, employers, and business representatives in planning for their future - from creating initial documents for a new company to advising on compensation, harassment, discrimination, and employment agreements - to estate planning and trusts and estate administration, Connie advises clients with shrewdness and prudence backed by over three decades of experience.
