WAGE AND HOUR ISSUES: FAIR LABOR STANDARDS ACT Colleen B. Mendel, MBA Executive Director Training & Technical Assistance Services

Management Responsibilities  Pay employees for work you know or suspect is performed  See that work you do not want performed is not done  Have policies against performing work you do not want performed  Exercise control and enforce policies  Pay for pre-approved OT & suffered work

Management Responsibilities Understand that:  Simply because an employee is paid a salary does not make him/her exempt  As long as an employee is paid hourly, s/he is normally considered non-exempt  Whenever an employee has assigned responsibilities (even is not exercised), s/he must be paid

“Fair Pay” Rules  New rules published April 23, 2004  Most significant revision since late 1940s  Much less drastic than rule originally proposed March 31, 2003  Received nearly 80,000 comments  Absent judicial or Congressional action, takes effect on August 23, 2004  Senate voted to block new rules on May 4 th  House voted to support new rules on May 12 th

“Fair Pay” Rules  Clarify & simplify old long & short tests for determining exempt status  Raise minimum salary requirements from as little as $155/wk ($8,060/yr) to $455/wk ($23,660/yr)  Can deny OT to “highly compensated” employees (>$100,000/yr) who meet exempt criteria  Can suspend exempt employee for misconduct in one day increments  Provide “safe harbor” to fix improper deductions from exempt employee’s pay  Clarify educational requirements for professional exemption

White Collar Exemptions Exempt from both minimum wage and overtime pay  Executive  Administrative  Professional  Outside Sales  Certain Computer Employees (under professional exemption)

Three Tests for Exemption  Salary Level  Salary Basis  Job Duties

Salary Level Test  For most employees, min salary level required for exemption is $455/wk  Can be paid in equivalent amounts over longer period than week (e.g., monthly)  Highly compensated: total annual >$100,000, at least $455/wk,performs exempt duties (executive, administrative or professional)

Salary Basis Test  Predetermined amount each pay period  Pay not reduced based on variations in quality or quantity or work performed  Paid full salary for any week in which the employee performs any work (some permitted deductions follow)  Need not be paid for any work week when no work is performed

Permitted Salary Deductions  Absence from work for one or more full days for personal reasons  Absence from work for one or more full days due to sickness or disability if deductions made under 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

Permitted Salary Deductions  Penalties for violating safety rules of “major significance”  Unpaid disciplinary suspension of one or more full days for violations of workplace conduct rules (NEW)  Proportion of time worked in first or last weeks of employment  Unpaid leave taken under FMLA

Safe Harbor (NEW)  Exemption will not be lost if the employer: -has clearly communicated policy prohibiting improper deductions & a complaint mechanism -reimburses employees for improper deductions -makes good faith commitment for future compliance  Unless the employer willfully violates the policy by continuing improper deductions after complaints

Executive Exemption  Old Rules Min $155/wk Primary duty: mgmt of agency, dept or subdivision Customarily, regularly directs work of 2 or more employees (or at least 2 FTEs)  Fair Pay Rules Min $455/wk or $100,000/yr Same duty and supervision tests Authority to hire/fire or recommendations given “particular weight”

Administrative Exemption  Old Rules Min $155/wk Primary Duties: non- manual or office work directly related to mgmt policies or general business ops Requires discretion & independent judgment  Fair Pay Rules Min $455/wk or $100,000/yr Primary Duties: non- manual or office work related to mgmt or general business opps or employer’s customers Requires discretion & independent judgment

Discretion & Independent Judgment Does the employee have the authority to:  commit the employer in matters that have significant financial impact?  waive or deviate from established policies and procedures without prior approval?  negotiate and bind the company on significant matters?  formulate, affect, interpret or implement management policies or operating practices?

Discretion & Independent Judgment Does the employee:  provide consultation or expert advice to management?  have involvement in planning long- or short- term business objectives?  investigate and resolve matters of significance on behalf of management?  represent the agency in handling complaints, arbitrating disputes or resolving grievances?

Discretion & Independent Judgment Does the employee:  carry out major assignments in conducting the operations of the agency or program?  perform 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 organization?

Discretion & Independent Judgment Discretion and independent judgment does not include:  Applying well-established techniques, procedures or specific standards described in manuals or other sources  Clerical or secretarial work  Recording or tabulating data  Performing mechanical, repetitive, recurrent or routine work

Professional Exemption  Old Rules Min $170/wk or $27.63 per hr for computer employees Primary Duty: Work requiring advanced knowledge in field of science or learning customarily acquired by prolonged course of intellectual instruction Discretion & independent judgment  Fair Pay Rules Min $455/wk or $100,000/yr or $27.63/hr for computer employees Primary Duty: Same Discretion & independent judgment

Advanced Knowledge  Predominantly intellectual in character  Includes work requiring consistent exercise of discretion and judgment  Advanced knowledge generally used to analyze, interpret or make deductions from varying facts or circumstances  Not work involving routine mental, manual, mechanical or physical work  Cannot be attained at the high school level

Computer Employees  Can be paid on an hourly basis and retain exempt status  No requirement to exercise discretion and independent judgment  Not eligible for “highly compensated” test

What should your agency do?  Review and revise employee classifications -Convert low-paid personnel (<$455/wk) to non-exempt status -Convert misclassified employees to non- exempt status -Use this opportunity to correct past policies without “raising eyebrows”

What should your agency do?  Review payroll practices -Review sample payroll runs for salary of part-time and other workers and the $455/wk threshold -Make sure you are complying with the salary basis test -Train managers and payroll workers to avoid impermissable deductions

What should your agency do?  Review and revise job descriptions -Better describe actual duties -Emphasize exempt duties -Describe discretion and independent judgment where applicable -Expressly give executives authority to hire/fire or to make recommendations given particular weight -Weigh and document the determination of a position’s primary duty -Document why workers are exempt and under what exemption -Seek counsel for close classification issues

What should your agency do?  Revise Personnel Policies & Procedures -To comply with salary basis test -To allow disciplinary deductions in full day increments (after August 23, 2004) -To define your work week -To distinguish policies for exempt workers from non-exempt salaried and hourly workers -To add the “safe harbor” policy to allow correction of improper deductions

What should your agency do?  Revise financial policies & procedures -To add the “safe harbor” policy to allow correction of improper deductions -To ensure ongoing compliance with salary basis test -To allow for “Highly Compensated” test -To include impermissable deductions -To ensure proper payment of overtime

What else should you do?  Be prepared to implement new policies, procedures and practices on August 23, BUT  Watch the financial publications and the news to see if Congressional or court action delays the effective date of the Fair Pay Rules, requires certain changes, or remands to DOL for revision.