The Fair Labor Standards Act at the University of Michigan

The Fair Labor Standards Act at the University of Michigan
The FLSA at the University of Michigan January 2005 The Fair Labor Standards Act at the University of Michigan The Fair Labor Standards Act (FLSA) has been around for a long time—since 1938 to be exact, with a limited number of changes being made since then. So why do we continue to have such a difficult time with it? After all, we’ve had 65 years to perfect it, right? If you think you are alone in your confusion, you are not. Most conference sessions on FLSA are standing room only and there is ultimately the one attendee in the back who stands and asks, “We pay our exempt employees on an hourly basis. Is that OK?” While heads turn to see who is asking such a ridiculous question, you can invariably see some faces wondering, “Well, is it OK?” (Just in case you are wondering, it isn’t OK. In addition to performing exempt duties, exempt employees must be paid on a salary basis.) There have been numerous lawsuits in the past two years involving violations of the FLSA—some involving big names like Starbucks and Wal-Mart. The most common violation involves misclassification of status, which leads to overtime payment errors, which can lead to costly lawsuits. Effective August 23, 2004, the U.S. Department of Labor (DOL) issued sweeping changes to the FLSA regulations that affect most employers in the United States and its territories. Many of our employees have changed exemption status under the new regulations due to increases in salary thresholds and/or changes in the various duties tests applicable to administrative, executive, professional, and outside sales exemptions. This course will review the new Fair Labor Standards Act regulations as it relates to the University of Michigan. May 2010 ©Copyright 2004 The Regents of the University of Michigan

The FLSA at the University of Michigan
January 2005 Agenda Define Fair Labor Standards Act Legal Liability Salary Level Test Salary Basis Test Job Duties Tests Executive Computer Outside Sales Learned Professional Creative Professional Administrative ©Copyright 2004 The Regents of the University of Michigan

Fair Labor Standards Act
The FLSA at the University of Michigan January 2005 Fair Labor Standards Act Purpose Eliminate detrimental working conditions Establish a minimum wage rate Protect the educational opportunities of youth Major Provisions Federal Minimum Wage: $7.25/hour State of Michigan Minimum Wage: $7.40/hour Overtime: 1 ½ times the regular rate of pay for all hours over 40 hours in a work week Recordkeeping Child-labor restrictions The Fair Labor Standards Act (FLSA), also known as the federal Wage and Hour Law, regulates minimum wage, overtime, equal pay, recordkeeping, and child labor for employees of enterprises engaged in interstate or foreign commerce and employees of state and local governments. It can be found in section 29 of the US Code (and section 29 of the Code of Federal Regulations). Enforcement. The FLSA is enforced by the Wage and Hour Division of the U.S. Department of Labor (DOL). Although FLSA applies in all states, it permits states to regulate areas not covered by FLSA and to afford workers greater protections. Where state law and FLSA conflict, employers must follow the provision that is more favorable to the employee. The State of Michigan’s minimum wage requirement is higher than the Federal minimum wage requirement therefore supersedes it. See Appendix for information on states which provide greater protection. Important: There are a number of employment practices that FLSA does not regulate. For example, it does not regulate: vacation, holiday, severance, or sick pay; meal or rest periods, or time off for holidays or vacations; premium pay for weekend or holiday work; pay raises or fringe benefits; and a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees. The FLSA requires that most employees in the United States be paid at least the federal minimum wage and overtime pay at time and one-half their regular rate of pay after 40 hours in a workweek. ©Copyright 2004 The Regents of the University of Michigan

Impetus for Reform: Growth of Litigation
The FLSA at the University of Michigan January 2005 Impetus for Reform: Growth of Litigation “Collective” actions in the wage-hour area now exceed employment discrimination class actions Misclassification damages = [(Hours > 40 x 1.5 Regular Rate) x (2 or 3 years) x (2 for Liquidate Damages)] x (Number of Employees) + Attorney’s Fees + Court Costs At the University of Michigan damages are paid at the department level The U.S. Department of Labor's (DOL) primary objective in revising the white collar exemptions from the minimum wage and overtime rules under the Fair Labor Standards Act (FLSA) was to make it easier for employees and employers to understand their rights and obligations under the law. There have been many cases concerning FLSA litigation in the past two years. As a result, employers have paid millions of dollars in jury awards and settlements. Wal-Mart. A federal jury found that Wal-Mart violated employment laws by requiring employees to punch out and continue to work without pay. The practice clearly violates the FLSA, which requires employers to pay employees one-and-one-half times their regular rate of pay for any hours worked over 40. Employees involved in the lawsuit also alleged that Wal-Mart deleted hours from time cards and harassed employees who claimed overtime. This lawsuit, decided by a federal jury in Oregon, is only one of many against the retailer. Other cases have already been decided for millions of dollars (some reports say $50 million to 69,000 plaintiffs), and almost 40 additional lawsuits for back pay against the company are pending. UPS (United Parcel Service) settled back pay issues with part-time supervisors in California for an estimated $18 million. UPS had classified the workers as exempt under the FLSA, but they were really nonexempt employees. Starbucks Corporation paid $18 million to settle claims made by more than 1,000 managers and assistant managers that they were incorrectly classified. A jury awarded $90 million in back pay to 2,400 Farmer’s Insurance adjusters (currently on appeal). SBC Pacific Bell had two settlements: one for $34 million with 1,500 engineers, another for $27.8 million in 1997 with sales support managers. Rite-Aid Corporation settled $25 million with 3,000 managers and assistant managers. Bank of America had a settlement of $22 million with 6,000 personal bankers. CSK Auto, Inc. had a settlement of $11 million with 1,500 store managers. Taco Bell settled $9 million with 3,000 managers and assistants. Radio Shack settled a case and agreed to pay $29.9 million to 1,300 current and former managers. In another suit, Eckerd Corporation (pharmacy) paid $8 million to settle a suit brought by pharmacists. ©Copyright 2004 The Regents of the University of Michigan

Impetus for Reform: Growth of Litigation
The FLSA at the University of Michigan January 2005 Impetus for Reform: Growth of Litigation What can you do to avoid litigation? Understand the exemptions Review duties of the jobs in your department Update position descriptions frequently Call the FLSA Compliance Team for additional assistance Keep documentation Why so much litigation? One reason might be the change in the economy. With companies laying off workers, others in the company, often managers, end up doing “non-managerial” types of work and may lose their exempt status. A more probable cause for the increase in lawsuits is probably because employers misunderstand the exemptions themselves. What can you do to avoid litigation? Understand the exemptions. Familiarize yourself with the requirements of each exemption. Take a careful look at the duties of the jobs in your department. The FLSA’s current salary exemption requirements are easy to overcome because they are so low. The determinative factor will undoubtedly be the duties test (i.e., what is the employee actually doing all day?). Then, make sure that the employee is actually doing those things. Update position descriptions frequently. Many departments write position descriptions when posting a position and never look at it again. If litigation ever occurs, an employee’s position description may be critical as it is a written document showing what the employer thinks that employee should be doing. How often is ‘frequently’? A good practice is to require your managers to review position descriptions of their direct reports when updating work plans at the start of a performance period. Call the FLSA Compliance Team. If you are still confused about choosing a status, contact the FLSA Compliance Team and ask their opinion. The FLSA Compliance Team was formed to provide ongoing exemption status compliance and maintenance for the University. This team is made up of representatives from Regional Campuses, Health System HR and HRAA Compensation, Staff Relations and Employment. The team underwent extensive FLSA training under the new regulations and is responsible for maintaining current interpretations of the regulations based on case law that emerges. Document, document, document. Listing when an employee’s position description was last reviewed shows diligence on the employer’s part. On the other hand, putting this in the file and then NOT revising it shows no diligence. If you only document one thing in the file about exemption status, let it be the reasoning behind the exemption. ©Copyright 2004 The Regents of the University of Michigan

“White Collar” Exemptions
The FLSA at the University of Michigan January 2005 “White Collar” Exemptions Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees who are employed in a bona fide: Executive; Administrative; Professional; or Outside Sales capacity Certain computer employees may be exempt professionals under Section 13(a)(1) or exempt under Section 13(a)(17) of the FLSA Nonexempt Employees Nonexempt employees are those that are covered by FLSA minimum wage and overtime pay provisions. An employee who is paid on an hourly basis is usually considered to be nonexempt, regardless of the hourly rate paid. (There is an exception: Computer programmers, systems analysts, and similar professionals are considered exempt if they earn an hourly rate of $27.63 or more.) Employees are also nonexempt if they do not qualify for one of several “white-collar” exemptions. Employees generally classified as nonexempt include, but are not limited to, clerical, blue-collar, maintenance, construction, and semiskilled workers, as well as technicians and laborers. Exempt Employees FLSA exempts broad categories of “white collar” jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. These categories include executives, administrative employees, professional employees, and outside sales personnel. Employers should periodically review the duties of exempt employees to ensure that they still qualify for exempt status, especially if the company has undergone restructuring or downsizing. ©Copyright 2004 The Regents of the University of Michigan

Three Tests for Exemption
The FLSA at the University of Michigan January 2005 Three Tests for Exemption Salary Level Salary Basis Job Duties The white-collar exemptions include the executive, administrative and professional exemptions, as well as those for computer professionals and outside salespersons. The revised regulations also include a new exemption for highly compensated employees who regularly perform at least one of the duties of an exempt executive, administrator or professional. Generally speaking, for an employee to fall within any one of these exemptions, the following three requirements must be met: The employee must be paid at least the regulatory minimum salary. (Outside salespersons and certain professional employees, such as attorneys, are not subject to this requirement.) The employee must be paid on a salary-rather than an hourly-basis, and the employer must make no deductions from that individual's pay that are not consistent with being paid a salary. The employee's primary duties must be "exempt" in nature. These fundamental principles, which did not change from the old rules, sound pretty straightforward. But now, as in the past, don't expect their application to be smooth as silk. The purpose of this course is to review some of the basics, while paying particular attention to some of the most stubborn regulatory wrinkles. ©Copyright 2004 The Regents of the University of Michigan

Minimum Salary Level: $455
The FLSA at the University of Michigan January 2005 Minimum Salary Level: $455 For most employees, the minimum salary level required for exemption is $455 per week Must be paid “free and clear” The $455 per week may be paid in equivalent amounts for periods longer than one week: Biweekly: $910 Monthly: $1,971.66 The new regulations threw out the old long and short duties tests and their respective minimum salary levels in favor of a single, higher minimum salary of $455 per week or $23,660 annually. The $455 per week 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). The equivalent of the $455 per week salary level is $910 for biweekly pay periods and $1,971.66, for monthly pay periods. Employees who earn less than $455 per week ordinarily cannot be exempt, regardless of the nature of their job responsibilities. Those employees paid on an hourly basis, with the exception of computer employees (explained below), are considered nonexempt employees and must be paid overtime (one-and one- half times their regular rate of pay) for any hours worked over 40. Computing an employee’s regular rate can be a complex problem under the FLSA. In general, the regular rate is the employee’s average hourly earnings for that workweek. It includes compensation in the form of base pay, piece rates, commissions, shift premiums, and nondiscretionary bonuses. Payments not included in the regular rate of pay for overtime calculation purposes include discretionary bonuses (I.e., holiday, gifts), vacation, holiday, sick, expense reimbursements and contribution to bona-fide profit-sharing plan/trust, or thrift/savings plan. ©Copyright 2004 The Regents of the University of Michigan

Highly Compensated Test
The FLSA at the University of Michigan January 2005 Highly Compensated Test Total annual compensation of at least $100,000 At least $455 per week paid on a salary or fee basis Perform office or non-manual work Customarily and regularly perform any one or more of the exempt duties identified in the standard tests for the executive, administrative or professional exemptions 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. ©Copyright 2004 The Regents of the University of Michigan

Total Annual Compensation
The FLSA at the University of Michigan January 2005 Total Annual Compensation Total annual compensation includes: Base salary Commissions Nondiscretionary bonuses Other nondiscretionary compensation earned during a 52- week period Total annual compensation does not include: Credit for board, lodging or other facilities Payments for medical or life insurance Contributions to retirement plans or fringe benefits Total annual compensation includes base salary, commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period, but does not include credit for board, lodging and other facilities, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits. ©Copyright 2004 The Regents of the University of Michigan

Make-Up Payment & Pro-Rating
The FLSA at the University of Michigan January 2005 Make-Up Payment & Pro-Rating If an employee’s total annual compensation does not equal $100,000 by the end of the year: The employer may, within one month after the end of the year, make one final payment to reach the $100,000 level; or The employee will be tested for exemption under the standard duties tests The $100,000 may be pro-rated for employees who do not work the full year The employer may use any 52-week period at the year Special rules allow the employer to make one final payment within one month after the end of the year to satisfy the required $100,000 annual amount. But what happens if an individual is employed for less than a full year? The regulations provide that the minimum salary can be prorated so as to preserve the exemption, but they do not directly address what to do if an individual is employed for the entire year and then takes an extended unpaid leave of absence. Can the employer prorate the $100,000 requirement based on the period of time the employee is on unpaid leave? Although the regulations are silent on this precise issue, the DOL has stated in its regulatory preamble that its enforcement position will be that proration is not available for employees on unpaid leave for some portion of the qualifying year. The DOL failed to anticipate the substantial problems its interpretation could create for employers. Assume that an employee who performs exempt duties is expected to earn $100,000 in salary for the year. Accordingly, you don't pay her overtime. Unexpectedly, however, she goes out on a four-month leave and fails to meet the $100,000 standard by the end of the year. Under the DOL's enforcement position, the employer may owe the employee overtime for the eight months she worked, unless the employer is able to establish that the employee satisfies all of the requirements of either the executive, administrative or professional exemption-in other words, if she performs all, not just one, of the duties for a particular exemption. Accordingly, the less risky practice is to classify even highly compensated employees under one of the traditional exemptions, when possible, and to rely on the highly compensated exemption only when no other exemption clearly applies. In addition, departments should have a mechanism in place to automatically reassess the exempt status of highly compensated employees who go out on Family and Medical Leave Act (FMLA) leave or other extended leave. ©Copyright 2004 The Regents of the University of Michigan

Office or Non-manual Work
The FLSA at the University of Michigan January 2005 Office or Non-manual Work The highly compensated test is not available for Non-management production line workers Non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers Other employees who perform work involving repetitive operations with their hands, physical skill and energy The highly compensated test is not available for non-management production line workers and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers, laborers and other employees who perform work involving repetitive operations with their hands, physical skill and energy. ©Copyright 2004 The Regents of the University of Michigan

Customarily and Regularly
The FLSA at the University of Michigan January 2005 Customarily and Regularly A frequency that must be greater than occasional but which, of course, may be less than constant Includes work normally and recurrently performed every workweek Does not include isolated or one-time tasks The phrase “customarily and regularly” means a frequency that must be greater than occasional but which may be less than constant. Tasks or work performed “customarily and regularly” include work normally and recurrently performed every workweek; it does not include isolated or one-time tasks. If a highly compensated “white collar” employee customarily and regularly performs one or more exempt duties, detailed analysis of all the job duties performed is not necessary. For example, an employee may qualify as a highly compensated executive employee if the employee customarily and regularly directs the work of three or more other employees, even though the employee does not meet all of the other requirements in the standard test for exemption as an executive. However, the less risky practice is to classify even highly compensated employees under one of the traditional exemptions, when possible, and to rely on the highly compensated exemption only when no other exemption clearly applies. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Salary Basis Test Regularly receives a predetermined amount of compensation each pay period (on a weekly or less frequent basis) The compensation cannot be reduced because of variations in the quality or quantity of the work performed Must be paid the full salary for any week in which the employee performs any work Need not be paid for any workweek when no work is performed The FLSA defines a workweek as a period of 168 hours during 7 consecutive 24-hour periods. It may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged. 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. An employee is not paid on a salary basis if the employer makes deductions from the predetermined salary, for example, for absences caused by the employer or because of the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available. A number of common payroll and recordkeeping 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. ©Copyright 2004 The Regents of the University of Michigan

Permissible Deductions
The FLSA at the University of Michigan January 2005 Permissible Deductions Seven exceptions from the “no pay-docking” rule: Personal absence from work for one or more full days Sickness or disability absence from work for one or more full days Jury Fee, Witness Fee or Military pay offsets Penalties for violating safety rules of “major significance” Unpaid disciplinary suspension for violations of workplace conduct rules Proportionate part of full salary for time actually worked in the first and last weeks of employment Unpaid leave under the Family and Medical Leave Act The permissible deductions area of law has always been difficult for employers and employees alike. While there are different answers to different scenarios, the general rule is that employers may deduct less than a full day’s wages from nonexempt employees, but may not deduct less than a full day’s salary from exempt employees. The theory is that a nonexempt employee gets paid for doing a certain job—let’s say, producing widgets. When the day is over, the employee has earned his or her hourly rate for producing x number of widgets. If they don’t work, they don’t get paid (unless, of course they use a sick day, etc.). If they only work seven out of eight hours, that’s what they will be paid. Exempt employees, however, are paid on a salaried basis. They work until the job is done and will receive that same salary whether they work 1 hour per week or 100 hours per week. Therefore, deductions from salary are generally not permitted. However, 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 taken pursuant to the Family and Medical Leave Act (FMLA) ©Copyright 2004 The Regents of the University of Michigan

Effect of Improper Deductions
The FLSA at the University of Michigan January 2005 Effect of Improper Deductions An actual practice of making improper deductions from salary will result in the loss of the exemption: During the time period in which improper deductions were made For employees in the same job classifications Working for the same managers responsible for the actual improper deductions Isolated or inadvertent improper deductions, however, will not result in the loss of exempt status if the employer reimburses the employee What is the effect on an employee’s exemption status if an employer makes improper deductions from the salary? If the employer had an actual practice of making improper deductions from salary, the exemption will be lost, and overtime pay due for hours worked over 40 per week during the time period in which improper deductions were made, to employees in the same job classifications and who work for the same managers responsible for the actual improper deductions. Employees in different job classifications, or working for different managers, would not lose their exempt status. Isolated or inadvertent improper deductions, however, will not result in the loss of exempt status if the employer reimburses the employee for the improper deduction. 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. 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. 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. ©Copyright 2004 The Regents of the University of Michigan

Example: Effect of Improper Deductions
The FLSA at the University of Michigan January 2005 Example: Effect of Improper Deductions If Manager A has docked the pay of Engineer A on each of 12 days when Engineer A arrived late for work during the last 3 months, then the exemption could be lost for Engineer A and Engineer B during that 3 months, but could not be lost for the Chemist or Engineers C and D This slide includes an example to illustrate the effect of improper deductions. In the example, a manager who supervises two engineers and one chemist has docked the pay of an engineer on each of 12 days when the engineer arrived late for work during the last 3 months. Because this is an actual practice of making pay deductions, the exemption would be lost for the engineer whose pay was actually docked and for the other engineer supervised by that same manager. However, the exemption is not lost for the chemist supervised by the manager who made the improper pay deductions or for the engineers who are supervised by another manager. The employer would owe overtime pay for all hours worked over 40 per week during the 3 months that the manager made the improper pay deductions. ©Copyright 2004 The Regents of the University of Michigan

Additional Compensation
The FLSA at the University of Michigan January 2005 Additional Compensation An employer may provide compensation in addition to the $455 minimum guaranteed weekly salary, such as: Commissions Bonuses Additional pay based on hours worked beyond the normal workweek The regulations also allow an employee’s earnings to be computed on an hourly, daily or shift basis, if the employer: Guarantees at least $455 per week paid on a salary basis, regardless of the number of hours, days of shifts worked; and A reasonable relationship exists between the guaranteed amount and the amount actually earned 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 bonuses and/or incentive payments. In addition, an employer can calculate an exempt employee’s earnings on an hourly, daily or shift basis, without losing the exemption or violating the salary basis requirement, if the employer guarantees that at least the minimum weekly required amount will be paid on a salary basis regardless of the number of hours, days or shifts worked, and there is a “reasonable relationship” between the guaranteed amount and the amount actually earned. ©Copyright 2004 The Regents of the University of Michigan

Reasonable Relationship
The FLSA at the University of Michigan January 2005 Reasonable Relationship “Reasonable relationship” means the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek For example, an exempt employee guaranteed at least $500 per week and who normally works four or five shifts each week, may be paid $150 per shift without violating the salary basis requirement “Reasonable relationship” means the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek. For example, an exempt employee guaranteed at least $500 per week and who normally works four or five shifts each week, may be paid $150 per shift without violating the salary basis requirement. The reasonable relationship requirement applies only to situations where the employee’s pay is computed on an hourly, daily or shift basis; it does not apply, for example, to an exempt store manager paid a guaranteed salary of $650 per week who also receives a commission on store sales or profits, which in some weeks may equal or even exceed the guaranteed salary without violating the salary basis requirement. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Fee Basis Administrative and professional employees also may be paid on a “fee basis” An employee is paid on a “fee basis” if the employee is paid an agreed sum for completing a single job, regardless of the time required to complete the work Payment on a “fee basis” is not available for a series of non- unique jobs repeated an indefinite number of times for which payment on an identical basis is made over and over again A fee payment meets the minimum salary level required for exemption if, based on the time worked to complete the job, the fee is at a rate that would amount to at least $455 per week if the employee worked 40 hours Administrative and professional employees may also be paid on a fee basis rather than on a salary basis. An employee is paid on a “fee basis” if the employee is paid an agreed sum for completing a single and unique job, regardless of the time required to complete the work. Payment on a “fee basis” is not available for a series of non-unique jobs repeated an indefinite number of times for which payment on an identical basis is made over and over again. Payments based on the number of hours or days worked and not on the accomplishment of a single, unique task are not payments on a fee basis. To test whether a fee payment meets the minimum level required, consider the time worked to complete the job and determine if the payment is at a rate that would yield at least $455 per week if the employee worked 40 hours. For example, an artist paid $250 to paint a portrait that took 20 hours to complete meets the minimum salary requirement since the rate would yield $500 if 40 hours were worked. ©Copyright 2004 The Regents of the University of Michigan

No Salary Requirements
The FLSA at the University of Michigan January 2005 No Salary Requirements The salary level and salary basis tests do not apply to: Outside Sales Employees Doctors Lawyers Teachers Certain computer-related occupations paid at least $27.63 per hour The salary level and salary basis requirements described in this course do not apply to outside sales employees, licensed or certified doctors, lawyers and teachers. Employees in these occupations are exempt regardless of their salary. In addition, Section 13(a)(17) of the FLSA exempts hourly paid employees in certain computer-related occupations if they are paid at least $27.63 per hour. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Review Minimum Salary Level: $455 per week Highly Compensated Level: $100,000 per year Salary Basis: A 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 The salary level and salary basis tests do not apply to outside sales employees, doctors, lawyers, teachers, and certain computer-related occupations paid at least $27.63 per hour 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. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Job Duties In addition to the salary requirements, exempt employees must perform executive, administrative or professional duties set forth in the regulations. It is important to remember, job titles do not determine exemption status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations. The next several sections discuss the duties requirements for these tests. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Executive Duties Primary duty is management of the enterprise or of a customarily recognized department or subdivision; Customarily and regularly directs the work of three or more other employees; and Authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight In addition to the salary requirements, the executive exemption applies only if the following three duties requirements are met: the employee’s primary duty must be management; the employee must customarily and regularly direct the work of three or more employees1; and 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. There are a number of important terms in these duties. Let’s explore them. 1 The revised regulations call for the employee to direct the work or two or more employees. The University of Michigan has set our threshold at three or more. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Primary Duty The principal, main, major or most important duty that the employee performs Factors to consider include, but are not limited to: Relative importance of the exempt duties; Amount of time spent performing exempt work; Relative freedom from direct supervision; and Relationship between the employee’s salary and the wages paid to other employees for the same kind of nonexempt work Employees who spend more than 60% of their time performing exempt work will generally satisfy the primary duty requirement However, the regulations do not require that exempt employees spend more than 60% of time performing exempt work Primary duty means the principal, main, major or most important duty that the employee performs. An employee’s primary duty is determined by looking at all the facts, with the major emphasis on the character of the employee’s job as a whole. Important factors to consider when determining the primary duty include: the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and the wages paid to other non-exempt workers for the same kind of nonexempt work. Assume you have a salaried employee whom you think falls within the administrative exemption. This employee's nonexempt work involves inputting data into your computer system. You compare this employee's salary with the wages paid to the nonexempt employees whose primary responsibility is inputting data. If their wages average $450 per week, then paying the employee whom you wish to treat as exempt $455 per week may not be enough to classify the employee as exempt. Of course, this is only one of the four factors to be considered in determining an employee's primary duty. However, it is a factor that is often overlooked and could be the straw that breaks the camel's back if the employee's exempt status is otherwise questionable, so be sure to take it into account. The amount of time spent performing exempt work can be a useful guide, and employees who spend more than 60 percent of their time performing exempt work generally will satisfy the primary duty requirement. Time alone, however, is not the sole test, and nothing in the regulations requires exempt employees to spend more than 60 percent of their time performing exempt work. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Management Interviewing, selecting, and training employees Setting and adjusting pay and work hours Maintaining production or sales records Appraising employee productivity and efficiency Handling employee complaints and grievances Disciplining employees Planning and apportioning work among employees Determining the techniques to be used; the type of materials, supplies, machinery, equipment or tools to be used; or the merchandise to be bought, stocked and sold Providing for the safety and security of employees or property Planning and controlling the budget Monitoring or implementing legal compliance measures The regulations define the term management by listing a number of examples of management activities, most of which are listed on this slide. Management includes activities related to supervising employees such as interviewing, selecting, and training of employees; setting and adjusting pay rates and work hours; conducting performance appraisals; handling employee complaints and grievances; and disciplining employees. Management also includes other functions related to running or servicing a business such as determining the merchandise to be bought, stocked and sold; planning and controlling the budget; and monitoring or implementing legal compliance measures. At the University of Michigan divided supervision into two categories: Functional Supervision. – supervisors works as group leaders, assist in the training/orientation of new staff, communicate instructions and maintain employee records. They assign work to others and coordinates the work of assigned personnel by examining the quality of work done. Supervisors exercising this type of supervision are responsible for both the quantity and quality of work performed. Administrative supervision – supervisors have the authority to hire, transfer, suspend, promote, discharge, or recommend such action. The supervisor would generally plan and formulate changes or modifications to work methods and/or procedures or recommend such action. Individuals who have administrative supervisory responsibilities would qualify for the regulations definition of management. ©Copyright 2004 The Regents of the University of Michigan

Department or Subdivision
The FLSA at the University of Michigan January 2005 Department or Subdivision A “customarily recognized department or subdivision” must have a permanent status and continuing function Need not be physically within the employer’s establishment, and may move from place to place Continuity of the same subordinate personnel is not essential to the existence of a recognized unit The employee in charge of each branch establishment is in charge of a recognized subdivision Does not include a mere collection of employees assigned from time to time to a specific job An exempt executive must manage the entire business or have management responsibility over a “customarily recognized department or subdivision” of the business. A “department or subdivision” is a subpart of the business which has “a permanent status and continuing function.” The subdivision need not be physically within the employer’s establishment and may move from place to place. The mere fact that the employee works in more than one location does not invalidate the exemption. In addition, if an executive supervises employees in a recognized unit, it does not matter if some of the employees are drawn from other recognized units. On the other hand, a mere collection of employees assigned from time to time to a specific job or series of jobs is not a recognized subdivision. For example, an organization may have several large departments such as finance, legal, marketing, and human resources, each of which is a customarily recognized department. But recognized subdivisions also include different areas organized under the larger departments. Thus, an exempt executive may manage the compensation, benefits or labor relations functions within the human resources department. Recognized subdivisions can also be geographically separate offices or branch establishments. In a sales organization, for example, the managers in charge of each regional or district office could be exempt. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Three or More The phrase “three or more other employees” means three full- time employees or the equivalent Full-time generally means 40 hours per week The supervision of the same employees can be distributed among two or more exempt executives, but the hours worked by an employee cannot be credited more than once The term “three or more other employees” means that the exempt manager must supervise three full-time employees or the equivalent. Full-time generally means 40 hours per week. However, the Department will recognize industry standards defining full-time employment as 37 ½ hours or 35 hours per week, for example, but not less than that. An exempt executive generally must supervise other employees who work a total of 120 work hours not including the hours the executive works themselves. Supervision can be distributed among two or more exempt executives, as long as each executive is responsible for supervising 120 work hours of other employees each week. Thus, for example, a department with six full-time nonexempt workers may have up to two exempt supervisors. Of course, the work hours of nonexempt employees cannot be counted more than once. Thus, if two supervisors share responsibility for two full-time nonexempt workers, neither of the supervisors would be exempt. Only University of Michigan employees count. You cannot count employees of a temporary agency or contract employees (including subcontractors on a project). ©Copyright 2004 The Regents of the University of Michigan

Staffing Meets Requirement
The FLSA at the University of Michigan January 2005 Staffing Meets Requirement General Manager Assistant Manager Half-time Employee Full-time This slide shows some examples of acceptable full-time equivalents: three full-time employees; two full-time employee and two half-time employees; and six half-time employees. ©Copyright 2004 The Regents of the University of Michigan

Staffing Does Not Meet Requirement
The FLSA at the University of Michigan January 2005 Staffing Does Not Meet Requirement Full-time Employee Assistant Manager This slide shows staffing that would not meet the three or more standard. In this example, each assistant manager is responsible for only two and a half full-time equivalent employees, and thus, neither assistant manager would qualify for exemption. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Particular Weight Factors include, but are not limited to: Whether it is part of the employee’s job duties to make suggestions and recommendations The frequency with which suggestions and recommendations are made or requested The frequency with which the employee’s suggestions and recommendations are relied upon Suggestions and recommendations may be reviewed by a higher level manager The exempt executive need not have authority to make the ultimate decision Making an occasional suggestion regarding a change in status of a co-worker does not meet the “particular weight” standard An exempt executive employee must have “the authority to hire or fire other employees” or must have his or her suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status be given “particular weight.” A key term in this element is “particular weight.” Factors to consider when determining whether an employee’s recommendations are given “particular weight” include, but are not limited to: whether it is part of the employee’s job duties to make recommendations; the frequency with which recommendations are made or requested; and the frequency with which the recommendations are relied upon. Generally, an exempt executive’s recommendations must pertain to the employees he or she supervises. A recommendation can be given particular weight even if it is reviewed by a higher level manager. The exempt executive need not have authority to make the ultimate decision. However, “particular weight” does not include the occasional suggestion about a co-worker. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Concurrent Duties Concurrent performance of exempt and nonexempt work does not automatically disqualify an employee from exemption Exempt executives generally decide when to perform nonexempt duties and remain responsible for the success or failure of business operations Nonexempt employees generally are directed by a supervisor to perform the exempt work or perform the exempt work for defined time periods A common question that arises under the executive exemption is how to classify employees who perform both exempt management duties and nonexempt duties. The regulations state that a manager who performs both exempt and nonexempt work at the same time is not automatically disqualified from the executive exemption. Generally, the exempt executives themselves make the decision regarding when to perform nonexempt duties. In contrast, the nonexempt employee generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods. For example, if an assistant manager’s primary duty is management, performing work such as serving customers, cooking food, stocking shelves and cleaning the establishment does not preclude the exemption. An assistant manager can supervise employees and serve customers at the same time without losing the exemption. In contrast, a relief supervisor or working supervisor whose primary duty is performing nonexempt work on the production line in a manufacturing plant does not become exempt merely because he occasionally has some responsibility for directing the work of other nonexempt production line employees when, for example, the exempt supervisor is on vacation. ©Copyright 2004 The Regents of the University of Michigan

Executive Duties Review
The FLSA at the University of Michigan January 2005 Executive Duties Review Duties requirements for executive exemption: Primary duty of management; Customarily and regularly directs the work of three or more other employees; and Authority to hire or fire or having suggestions and recommendations as to hiring, firing, advancement promotion or any other change of status to other employees be given particular weight In review, 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 three or more employees; and the employee has administrative supervisory responsibility including the authority to hire or fire other employees, or has her recommendations be given particular weight. ©Copyright 2004 The Regents of the University of Michigan

Computer Professional Duties
The FLSA at the University of Michigan January 2005 Computer Professional Duties This section discusses the duties requirements for the computer professional exemption. ©Copyright 2004 The Regents of the University of Michigan

Computer Professional Duties
The FLSA at the University of Michigan January 2005 Computer Professional Duties To qualify for the computer professional exemption, the following tests must be met: Employees paid $455 per week salary or Employees paid $27.63 per hour or more, but no 1.5 OT Employee employed as a computer systems analyst, computer programmer, software engineer or similarly skilled worker in the computer field performing duties described below Employee's primary duty must consist of: The application of systems analysis techniques and procedures, including consulting with users, to determine hardware and software specifications The design of computer systems based on and related to user specifications The creation or modification of computer programs related to system design specifications or machine operating systems A combination of these duties, the performance of which requires the same high level of skills Employees paid on an hourly basis are nonexempt, even if they are nuclear chemists with multiple Ph.Ds. Computer professionals are the exception. They can be paid an hourly wage of at least $27.63, as established by the DOL's regulations, and still be exempt. But computer professionals still have to pass the duties test. Being paid the requisite salary of at least $455 per week or the required hourly wage does not create an automatic exemption. Whether salaried or hourly, a computer employee will be exempt as a professional only if the employee's primary duty (as defined earlier) is: The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications The design, documentation, testing, creation or modification of computer programs related to machine operating systems, or A combination of these duties, the performance of which requires the same high level of skills The computer exemption does not include employees engaged in the manufacture, or repair of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitate by, the use of computers and computer software programs (e.g., webmasters, engineers, drafters and other skilled computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test described above, are also not exempt under the computer employee exemption. ©Copyright 2004 The Regents of the University of Michigan

“Outside Sales” Exemption
The FLSA at the University of Michigan January 2005 “Outside Sales” Exemption Employee’s primary duty is making sales or obtaining orders for services and Employee customarily and regularly engages in work away from the employer’s place of business No salary requirement or particular salary level No longer a requirement of 80% of employee’s time on employee’s own sales New regs explicitly exclude “Inside Sales” by mail, telephone and Internet, except as an adjunct to personal sales calls To qualify for the outside sales exemption, the employee’s primary duty (as defined earlier) must be making sales, or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. In addition, the employee must be customarily and regularly engaged away from the employer’s place of business. The salary requirements of the regulation do not apply to the outside sales exemption. “Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. Obtaining orders for “the use of facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order. But what does it mean to be "away from the employer's business?" Does this cover sales employees who work out of their homes? For purposes of the outside sales exemption, an employee's home is considered the employer's business. "Away" from the employer's business generally means at customer or client sites. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property. What about promotional work designed to help facilitate outside sales? Can that count in determining whether the employee's primary duty is outside sales? The regulations provide that promotional work can be considered only if it is designed to facilitate an employee's own sales and not those of another employee. In short, it counts if the organization encourages selfish silos, but it doesn't count if the organization or the employee works collaboratively. ©Copyright 2004 The Regents of the University of Michigan

Learned Professional Duties
The FLSA at the University of Michigan January 2005 Learned Professional Duties There are two general types of professional exemptions: one applying to employees who are learned professionals; the other to those employees who are creative professionals. This section discusses the duties requirements for the learned professional exemption. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Learned Professional The employee’s primary duty must be the performance of work requiring advanced knowledge In a field of science or learning Customarily acquired by a prolonged course of specialized intellectual instruction In addition to the salary requirements which we already discussed, the learned professional exemption applies only if the employee’s primary duty is the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning which is customarily acquired by a prolonged course of specialized intellectual instruction. We have already discussed the meaning of “primary duty.” The next set of slides explores the definitions of the other key terms in the learned professional duties test. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Advanced Knowledge Predominately intellectual in character Includes work requiring the consistent exercise of discretion and judgment The advanced knowledge is 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 The regulations explain that work requiring “advanced knowledge” means work that is predominately intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment. An exempt professional employee generally uses the advanced knowledge to analyze, interpret or make deductions from varying facts or circumstances. Work involving routine mental, manual, mechanical or physical work is not work requiring advanced knowledge. Advanced knowledge cannot be attained at the high school level. ©Copyright 2004 The Regents of the University of Michigan

Field of Science or Learning
The FLSA at the University of Michigan January 2005 Field of Science or Learning Occupations with recognized professional status, as distinguished from the mechanical arts or skilled trades Law Accounting Actuarial Computation Theology Teaching Physical Sciences Medicine Architecture Chemical Sciences Pharmacy Engineering Biological Sciences Fields of science or learning are occupations with recognized professional status, as distinguished from the mechanical arts or skilled trades. Fields of science or learning include: law, theology, medicine, pharmacy, accounting, teaching, architecture, engineering and the physical, chemical or biological sciences. Many accountants are exempt as professional employees. However, exemption of accountants, as in the case of other occupational groups, must be determined on the basis of the individual employee’s duties and the other criteria in the regulations. Certified public accountants will almost always meet the requirements of the professional exemption. Accountants who are not certified public accountants may also be exempt as professional employees if they actually perform work that requires the consistent exercise of discretion and judgment and otherwise meet the tests prescribed in the definition of professional employee. Accounting clerks, junior accountants, and other accountants who perform a great deal of routine work that is not an essential part of, and not necessarily incidental to, any professional work that they may do are not exempt. ©Copyright 2004 The Regents of the University of Michigan

Prolonged Specialized Intellectual Instruction
The FLSA at the University of Michigan January 2005 Prolonged Specialized Intellectual Instruction Specialized academic training is a prerequisite for entering the profession Best evidence that an employee meets this requirement is possession of the appropriate academic degree The learned professional exemption is not available for occupations that may be performed with: Only the general knowledge acquired by an academic degree in any field Knowledge acquired through an apprenticeship Training in the performance of routine mental, manual, mechanical or physical processes The exemption also does not apply to occupations in which most employees acquire skill by experience This phrase “prolonged course of specialized intellectual instruction” means that the learned professional exemption is limited to professions where specialized, academic training is a standard prerequisite for entering the profession. The best evidence that an employee meets this requirement is possession of the appropriate academic degree. The learned professional exemption is not available for occupations that may be performed with only the general knowledge acquired by an academic degree in any field; knowledge acquired through an apprenticeship; or training in the performance of routine mental, manual, mechanical or physical processes. The exemption also does not apply to occupations in which most employees acquire skill by experience. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Customarily Exemption is also available to employees in learned professions who: Have substantially the same knowledge level and Perform substantially the same work as the degreed professionals, But attained the advanced knowledge through a combination of work experience and intellectual instruction Examples: Lawyer who did not attend law school Chemist who does not have a chemistry degree The word “customarily” means that this exemption is also available to employees in such professions who possess substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attain the advanced knowledge through a combination of work experience and intellectual instruction. Such employees may include the occasional lawyer who has not gone to law school, or the occasional chemist who does not have a degree in chemistry. Exemption is not automatically available to members of occupations such as journalism, in which the bulk of employees have acquired their skill by experience rather than by any formal specialized training. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Exempt Professions Doctors Nurses Other Medical Professionals Lawyers Teachers Accountants Licensed funeral directors or embalmers Pharmacists Engineers Actuaries Executive Chefs Athletic trainers Scientists in chemistry, biology, physics The learned professional exemption applies to any employee, such as doctors, who holds a valid license or certificate permitting the practice of medicine, including osteopathic physicians, podiatrists, dentists and optometrists. The exemption is also available to an employee who holds the requisite academic degree for the general practice of medicine and is engaged in an internship or resident program. Registered nurses who are registered by the appropriate State examining board generally meet the duties requirements for the learned professional exemption. However, many registered nurses receive overtime pay because they are paid by the hour, not on a salary basis as required for exemption. Licensed practical nurses generally do not qualify as exempt learned professionals. Registered or certified medical technologists, dental hygienists and certified physician assistants also generally meet the duties requirements for the learned professional exemption. Registered or certified medical technologists may qualify after completion of 3 years of pre-professional study in an accredited college or university, plus 1 year of professional study in an accredited school of medical technology. Dental hygienists may qualify after 4 years of pre-professional and professional study in an accredited college or university. Certified physician assistants may qualify after 4 years of pre-professional and professional study, including graduation from an accredited physician assistant program. Teachers are exempt if their primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment. Exempt teachers include, but are not limited to, regular academic teachers; kindergarten or nursery school teachers; teachers of gifted or disabled children; teachers of skilled and semi-skilled trades and occupations; teachers engaged in automobile driving instruction; aircraft flight instructors; home economics teachers; and vocal or instrument music teachers. Other exempt learned professionals include: lawyers, accountants, pharmacists, engineers, actuaries, chefs, athletic trainers and funeral directors or embalmers. The salary and salary basis requirements do not apply to bona fide practitioners of law, medicine or teachers. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Exempt Professionals Coaches Faculty engaged as teachers are generally exempt Non-faculty member bona fide executive employee Athletic Trainers Completed 4 academic years of pre-professional and professional study Curriculum accredited by Commission on Accreditation of Allied Health Education Programs Certified by Board of Certification of National Athletic Trainers Association Assistant Athletic Trainer 1998 DOL Opinion Letter: Non-exempt Faculty members engaged as teachers, but also spend a considerable amount of their time in extracurricular activities such as coaching athletic teams, are engaged in “teaching” and are therefore generally exempt under the professional exemption. A non-faculty member engaged as a coach similarly qualifies for exemption, but as a bona fide executive employee. Therefore, head coaches are not entitled to overtime pay under the new regulations. Athletic Trainers who completed four years or pre-professional and professional study in an accredited program, plus are certified by the National Athletic Trainers Association are considered exempt under the new learned professional exemption. However, as identified in the 1998 DOL opinion letter, Assistant Athletic Trainers generally do not meet the duties tests to qualify for exemption. The Assistant Athletic Trainer in that letter reported to a Head Athletic Trainer, and assisted with sports programs by providing supervision, training, evaluation, care, treatment prevention, and rehabilitation. The DOL decided that the duties and responsibilities did not meet the requirements for exemption under the FLSA because the employee lacked the discretion and independent judgment in the performance of his work required under the administrative exemption, and because the Assistant Athletic Trainer spent more than 50% of his time on non-exempt work. ©Copyright 2004 The Regents of the University of Michigan

Exempt Graduate Assistants
The FLSA at the University of Michigan January 2005 Exempt Graduate Assistants Graduate Teaching Assistant Assigned class or laboratory section for purpose of instruction Should still qualify for exemption Graduate Academic Assistant Not in charge of class or lab Answers students’ questions and assists them May also qualify for exemption as a teacher Graduate Research Assistant Academic relationship, not a employer-employee relationship Graduate Assistants are not discussed specifically in the new regulations or in the Preamble to the new regulations. A U.S. Department of Labor (DOL), Wage & Hour Administration Opinion Letter dated August 22, 1967, however, discusses the application of the former regulations to Graduate Assistants, and may be instructive for purposes of determining how they will be treated under the current regulations. In the 1967 Opinion Letter, the DOL stated that a Teaching Assistant who is assigned a class or laboratory section for the purpose of instruction may qualify for exemption because he or she is employed in the professional capacity of a teacher. An Academic Assistant, although not in charge of a class or laboratory section, but who answers students’ questions and assists them in their academic work, may also qualify for the professional exemption as a teacher. If the Assistant has as the primary duty a teaching activity, such as demonstrating laboratory experiments for students, they may also qualify for exemption as a teacher. In the case of a graduate student engaged as a Research Assistant, the DOL Opinion letter addressed a different but related issue, and stated that it will not assert that an employer-employee relationship exists, therefore there is no application of the overtime provisions of the FLSA. Similarly, in a June 28, 1994 Opinion Letter, the DOL reaffirmed its earlier position regarding Research Assistants, and determined that “in cases where graduate students in a graduate school are engaged in research in the course of obtaining advanced degrees and where the research is performed under the supervision of a member of the faculty in a research environment provided by the institution under a grant or contract,” it would not assert that an employer-employee relationship exists, even if the student receives a stipend for services under the grant or contract. To the extent that the Graduate Assistant is a “part-time employee” working 40 or less hours in a workweek, they would not be entitled to any overtime pay, regardless of the classification of the position. Moreover, if a Graduate Assistant is spending time in the chemistry lab for personal study or research, not related to work to be performed for the university, that time is non-compensable, and does not need to be included for purposes of calculating overtime. ©Copyright 2004 The Regents of the University of Michigan

Nonexempt Professions
The FLSA at the University of Michigan January 2005 Nonexempt Professions Accounting clerks and bookkeepers who normally perform a great deal of routine work Cooks who perform predominantly routine mental, manual, mechanical or physical work Paralegals and legal assistants Engineering technicians Employees who do not meet the requirements for the learned professional exemption include: accounting clerks and bookkeepers who normally perform a great deal of routine work; cooks who perform predominantly routine mental, manual, mechanical or physical work; legal assistants; and engineering technicians. What about paralegals who have a paralegal certificate? And where do certified HR professionals fit in? The key is the specific educational requirement. Keep in mind that it must be both "prolonged" and "specialized." Apply this to paralegals. Most paralegals have a college degree, but not specialized. Most paralegals also have some specialized certificate, but the training to receive it is not prolonged, hence paralegals do not satisfy the professional exemption. The same is true of most human resource professionals. Being a professional in the business sense does not automatically translate into being a "professional" in the legal sense. Unfortunately, the regulations do not provide substantial guidance on what constitutes a "prolonged course" relative to specialized intellectual instruction. As a practical matter, anything less than a four-year specialized program is at risk. However, just because these professionals don't fall within the "professional" exemption does not mean that they are nonexempt. Depending on their job responsibilities, HR professionals may fall within the administrative or executive exemption. Others, for example, recruiters who simply screen applications for predetermined requirements, or benefits coordinators who generally only collect, submit and file data, are generally considered non-exempt. Most paralegals will not fall within the administrative exemption because they will not have the requisite discretion and independent judgment. ©Copyright 2004 The Regents of the University of Michigan

Creative Professional Duties
The FLSA at the University of Michigan January 2005 Creative Professional Duties Let’s now turn to the second type of professional exemption, the creative professional exemption. ©Copyright 2004 The Regents of the University of Michigan

Creative Professional Duties
The FLSA at the University of Michigan January 2005 Creative Professional Duties The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor In addition to the salary requirements, the creative professional exemption applies only if the employee’s primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. The recognized fields of artistic or creative endeavor include music, writing, acting and the graphic arts. Thus, the requirements are generally met by actors, musicians, composers, conductors, soloists, certain painters, writers, cartoonists, essayists, novelists, photographers and others as set forth in the regulations. Exemption as a creative professional depends on the extent of the invention, imagination, originality or talent exercised by the employee. The creative professional exemption does not apply if the employee’s work can be produced by a person with general manual ability and training. Since the duties of employees vary widely, the determination of exempt status must be made on a case-by-case basis. Journalists do not meet the educational requirements for the learned professional exemption. However, journalists, reporters and other employees of newspapers, magazines, television and other media may satisfy the duties requirements for the creative professional exemption if their primary duty is work requiring invention, imagination, originality or talent. In addition, journalists may be exempt if they perform on-air in radio or television, conduct investigative interviews, analyze or interpret public events, or write editorials, opinion columns or commentary. These positions are not exempt creative professionals if they only collect, organize and record information that is routine or already public, or if they do not contribute a unique interpretation or analysis to a news product. Journalists also are not exempt if their work product is subject to substantial control. A 1996 DOL Opinion Letter issued under the former regulations explained that a Graphic Artist performing work that is original and creative, could qualify for the professional exemption, while a Graphic Arts Technician who engages in the drawing or reproduction from flat illustration, operating an offset duplicating machine to reproduce copies and who performs otherwise technical duties generally would not meet the conditions for exemption, notwithstanding that this technician may well possess the training for original artistic production. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Review Learned Professional Primary duty of the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction Creative Professional Primary duty of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor The learned professional exemption is available only for employees whose primary duty is the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. The creative professional exemption is available only for employee’s whose primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. ©Copyright 2004 The Regents of the University of Michigan

Administrative Duties
The FLSA at the University of Michigan January 2005 Administrative Duties This section discusses the duties requirements for the administrative exemption. ©Copyright 2004 The Regents of the University of Michigan

Administrative Duties
The FLSA at the University of Michigan January 2005 Administrative Duties Whose 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 Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance 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. ©Copyright 2004 The Regents of the University of Michigan

Management or General Business Operations
The FLSA at the University of Michigan January 2005 Management or General Business Operations Refers to the type of work performed by the employee Work must be directly related to assisting with the running or servicing of the business Does not include working on a manufacturing production line or selling a product in a retail or service establishment To meet the “directly related to management or general business operations” requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment. Work “directly related to management or general business operations” includes, but is not limited to, work in functional areas such as: Tax Finance; Accounting Budgeting Auditing Insurance Quality control Purchasing Procurement Advertising Marketing Research Safety and health Personnel management Human resources Employee benefits Labor relations Public relations Government relations Computer network, Internet and Database Administration Legal and Regulatory compliance ©Copyright 2004 The Regents of the University of Michigan

January 2005 Employers Customers Employees acting as advisors or consultants to clients or customers An exempt administrative employee’s primary duty must be the performance of work directly related to the management or general business operations of the employer or the employer’s customers. The regulations explain that the term “employer’s customers” means that employees who are acting as advisors or consultants to their employer’s clients or customers also may be exempt. This would include, for example, those working as tax experts or financial consultants. ©Copyright 2004 The Regents of the University of Michigan

Discretion and Independent Judgment
The FLSA at the University of Michigan January 2005 Discretion and Independent Judgment The comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered Must be exercised with respect to “matters of significance,” which refers to the level of importance or consequence of the work performed Decisions and recommendations may be reviewed at a higher level and, upon occasion, 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. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly. Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee’s duties may cause serious financial loss to the employer. 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. An employee may make recommendations for action rather than actually taking action and still qualify as exercising discretion and independent judgment. For example, the assistant to the president of a large corporation may regularly reply to correspondence addressed to the president. Such an assistant will submit the more important replies to the president for review before they are sent out. Occasionally, the president may alter or discard the prepared reply. This action does not mean that the assistant does not exercise discretion and independent judgment in answering correspondence and in deciding which replies may be sent out without review by the president. ©Copyright 2004 The Regents of the University of Michigan

The FLSA at the University of Michigan January 2005 Discretion and Independent Judgment Consider whether the employee: Formulates or implements policies or operations Conducts major assignments Performs work that affects business operations Has authority to commit the employer Has authority to waive or deviate from established practices Has authority to negotiate and bind the company Provides expert advice to management Is involved in planning long- or short-term business objectives Investigates and resolves matters of significance Handling complaints, arbitrating disputes or resolves grievances The regulations list a number of factors to consider in determining whether an employee exercises discretion and independent judgment with respect to matters of significance. These factors (listed on the next two slides) include, but are not limited to, whether the employee: has authority to formulate, affect, interpret, or implement management policies or operating practices; carries out major assignments in conducting the operations of the business; performs work that affects business operations to a substantial degree; has authority to commit the employer in matters that have significant financial impact; has authority to waive or deviate from established policies and procedures, without prior approval; has authority to negotiate and bind the company on significant matters; provides consultation or expert advice to management; is involved in planning long- or short-term business objectives; investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances. ©Copyright 2004 The Regents of the University of Michigan

The FLSA at the University of Michigan January 2005 Discretion and 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 The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources. The exercise of discretion and independent judgment also does not include clerical or secretarial work, recording or tabulating data, or performing other mechanical, repetitive, recurrent or routine work. For example, an employee who simply tabulates data is not exempt as an administrative employee, even if they are called a “statistician.” An employee who merely applies his or her knowledge in following prescribed procedures, determining which procedure to follow, or determining whether specified standards are met is not exercising discretion and independent judgment. For example, a quality control inspector is generally engaged in applying predetermined standards rather than using discretion and independent judgment. The professional exemption also requires judgment, but there is no requirement that a professional's judgment be "independent." Because the independent qualifier appears in the administrative exemption but not the professional exemption, it must be very important to the administrative exemption. On the other hand, some level of independence is important for all of the exemptions. As noted previously, one of the four factors in determining whether an employee's primary duties are exempt is the employee's relative freedom from supervision. Thus, an employee's relative degree of independence, especially with regard to the administrative exemption, creates substantial risk for employees whom you might want to treat as exempt but who report to micromanagers. For example, two employees have the same job description but report to different managers in different units. One manager allows the subordinate substantial independence in decision-making. The other manager needs to approve font changes in memos. Even if the first employee is exempt, the second employee may not be. The point is not that employers must evaluate separately the management style of each individual who supervises exempt employees to determine whether those subordinates are exempt. That is neither practical nor desirable. What is important is those who supervise exempt employees receive appropriate training so they don't micromanage their subordinates out of their exempt status. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Use of Manuals Exempt employees may use manuals, guidelines or other established procedures if they: contain or relate to highly technical, scientific, legal, financial or other similarly complex matters that can be understood or interpreted only by those with advanced or specialized knowledge or skills Employees are not exempt if they use manuals to apply well-established techniques or procedures within closely prescribed limits Using a manual, however, does not automatically disqualify an employee from the Section 13(a)(1) exemptions. Exempt employees may use manuals, guidelines or other established procedures containing or relating to highly technical, scientific, legal, financial or other similarly complex matters that can be understood or interpreted only by those with advanced or specialized knowledge or skills. The Section 13(a)(1) exemptions are not available for employees who simply apply well-established techniques or procedures described in manuals or other sources within closely prescribed limits to determine the correct response to an inquiry or set of circumstances. These rules of the use of manuals applies to all of the Section 13(a)(1) exemptions. ©Copyright 2004 The Regents of the University of Michigan

Insurance Claims Adjusters
The FLSA at the University of Michigan January 2005 Insurance Claims Adjusters Exempt status depends on actual job duties May be exempt if duties include: Interviewing insured, witnesses and physicians Inspecting property damage Reviewing factual information to prepare damage estimates Evaluating and making recommendations regarding coverage of claims Determining liability and total value of a claim; Negotiating settlements Making recommendations regarding litigation The regulations contain a number of examples to illustrate when employees meet the duties requirements for the administrative exemption. For example, although exempt status depends on the actual job duties performed by the employee, insurance claims adjusters generally meet the duties requirements for the administrative exemption if they perform work such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation. However, title alone is not the sole indicator. In what is likely one of the first cases interpreting the newly-revised FLSA overtime regulations, a federal court in Washington, D.C. ruled on July 20, 2004 that insurance adjusters employed by GEICO are not exempt from the regulations and are entitled to overtime pay. Prior to the court's decision, the insurance company considered the adjusters to be covered by the administrative exemption to the overtime rules, because their salaries far exceeded the statutory threshold and because their duties fit within the exemption's requirements. More than 280 current and former adjusters disagreed, suing for millions of dollars in unpaid overtime compensation and other damages. The adjusters draft damage estimates, relying heavily on the company's computer software program. The court, relying on the description of the administrative exemption in the new regulations, found that the adjusters do not exercise sufficient judgment and discretion to meet the requirements of the exemption. Because the majority of their work does not involve more than the use of their skills and training in "well-established techniques, procedures or specific standards" set forth by their employer to assess the amount of vehicle damage, the adjusters are not exempt. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Financial Services May be exempt if duties include: 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 Marketing, servicing or promoting the employer’s financial products An employee whose primary duty is selling financial products does not qualify for the administrative exemption Financial services employees may meet the duties requirements for the administrative exemption if their duties include 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, a financial services employee whose primary duty is selling financial products does not qualify for the administrative exemption. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Human Resources Human resource managers who formulate, interpret or implement employment policies generally meet the administrative duties requirements Personnel clerks who “screen” applicants to obtain data regarding minimum qualifications and fitness for employment generally are not exempt administrative employees Similarly, some human resources employees may be exempt administrators, while others are not. Human resource managers who formulate, interpret or implement employment policies generally meet the administrative duties requirements, but personnel clerks who “screen” applicants to obtain data regarding minimum qualifications and fitness for employment, but make no hiring decisions, generally are not exempt administrative employees. ©Copyright 2004 The Regents of the University of Michigan

Other Exempt Positions
The FLSA at the University of Michigan January 2005 Other Exempt Positions An employee who leads a team of other employees assigned to complete major projects Executive assistant or administrative assistant to a business owner or senior executive of a large business who has been delegated authority regarding matters of significance Management consultants who study the operations of a business and propose changes in organization Other examples of employees who may meet the duties requirements for the administrative exemption include: an employee who leads a team of other employees assigned to complete major projects; an executive assistant or administrative assistant to a business owner or senior executive of a large business who has been delegated authority regarding matters of significance; and management consultants who study the operations of a business and propose changes in organization. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Non-exempt Positions 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 Public sector inspectors on 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. ©Copyright 2004 The Regents of the University of Michigan

Academic Administrative Duties
The FLSA at the University of Michigan January 2005 Academic Administrative Duties Whose primary duty is the performance of office or non-manual work directly related to academic instruction or training in an educational institution Examples that do qualify: College/University Administrators involved with faculty and curriculum Department Administrators Lab Administrators Academic Counselors – advising students on academics, administering testing In addition to the salary requirements, the administrative exemption is also available to employees whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment. Academic administrative functions include operations directly in the field of education, and do not include jobs relating to areas outside the educational field. Employees engaged in academic administrative functions include: the superintendent or other head of an elementary or secondary school system; assistants responsible for administration of such matters as curriculum, quality and methods of instructing, measuring and testing the learning potential and achievement of students, establishing and maintaining academic and grading standards, and other aspects of the teaching program; the principal and any vice-principals responsible for the operation of an elementary or secondary school; department heads in institutions of higher education responsible for the various subject matter departments; academic counselors; and other employees with similar responsibilities. Academic Counselors are generally exempt under the new regulations. Academic administrative functions include Academic Counselors who perform work such as administering school testing programs, assisting students with academic problems and advising students concerning degree requirements. ©Copyright 2004 The Regents of the University of Michigan

Academic Administrative Duties
The FLSA at the University of Michigan January 2005 Academic Administrative Duties Examples that do not qualify: Social Workers Psychologists Food Service Managers Dieticians Enrollment/Admissions Counselors Recruiters The following jobs generally do not perform academic administrative functions. They may, however, qualify under other exemptions. Jobs relating to building management and maintenance Jobs relating to the health of the students, and academic staff such as: Social Workers Psychologists Food Service Managers Dieticians Enrollment/Admissions Counselors Recruiters Recruiters are generally not exempt under the academic administrative exemption. The Preamble to the new regulations explains that the DOL Opinion Letters issued February 19, 1998 and April 20, 1999 under the former regulations elaborate on the condition that the academic administrative exemption is limited to employees engaged in work relating to the academic operations and functions of a school, rather than work relating to the general business operations of the school. Thus, Enrollment Counselors who engage in general outreach and recruitment efforts to encourage students to apply to the school do not qualify for the academic administrative exemption because their work is not sufficiently related to the school’s academic operations. The April 20, 1999 Opinion Letter noted that, depending upon the employee’s duties, they might qualify for the general administrative exemption because their work related to the school’s general business operations and involved work in the nature of general “sales” promotion. The Preamble states specifically that, consistent with DOL Opinion Letters issued under the former regulations, Enrollment/Admissions Counselors were not included as an example of an exempt academic administrative employee. ©Copyright 2004 The Regents of the University of Michigan

January 2005 Review 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 Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance Also includes work where the primary duty is the performance of office or non-manual work directly related to academic instruction or training in an educational institution 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 educational establishments, the administrative exemption also includes employee’s whose primary duty is the performance of office or non-manual work directly related to academic instruction or training in an educational institution. ©Copyright 2004 The Regents of the University of Michigan

January 2005 For More Information Other resources on the Part 541 exemptions are available at Regulations Preamble Fact Sheets Field Operations Handbook Frequently Asked Questions If you have further questions please refer to the preamble, regulation, Fact Sheets, Field Operations Handbook or the frequently asked questions available on the Department of Labor’s FairPay web site. Also, you can contact the FLSA Compliance Team at your respective campus. ©Copyright 2004 The Regents of the University of Michigan

Analyzing Exempt Status
The FLSA at the University of Michigan January 2005 Analyzing Exempt Status Analyze By Time Divide job into discrete tasks List responsibilities and decisions made in each task Determine amount of time spent in each task Check that exempt time is 60% or more As you review your position classifications, keep in mind that, in most cases, your self-assessment probably will be discoverable. If you determine that a position probably is not exempt but you don't change the classification, there is a greater likelihood that the violation would be found willful in litigation. A willful violation warrants a three-year rather than a two-year statute of limitations, and double (liquidated) damages apply. ©Copyright 2004 The Regents of the University of Michigan

Combination Exemption
The FLSA at the University of Michigan January 2005 Combination Exemption An exempt employee’s work may consist of the duties that meet 2 or more exemptions E.g., Executive/Administrative All 6 Exemptions may serve Contact the Compensation & Classification Department for assistance ©Copyright 2004 The Regents of the University of Michigan

January 2005 State Law Technically, employers must comply with federal law and any state law that is more “pro-employee” Think of federal law as setting a “floor” Think of state law, where applicable, as setting a “ceiling” Does the job “pass” both the floor and the ceiling? The following states provide greater protection to employees: New Jersey follows old federal “long test.” Practically speaking, it may be difficult to meet the New Jersey test, even if a job meets the new federal test, e.g., 80% time = primary duty California law regulations/wage orders restate old “long” test. So, compliance with new federal regulations will not satisfy California test. Plus, misclassification class actions in California are the rage. For Maryland, Massachusetts, Connecticut and Colorado law the old federal “short” test is available, so federal compliance = state compliance, generally AZ, GA, MO, NE, NY, NC, SC, UT and WI generally follow federal law, explicitly or implicitly, so federal compliance = state compliance As a result some differences in classification of the same job by location may have to be made. ©Copyright 2004 The Regents of the University of Michigan

Overtime January 2005 1½ times regular rate over 40 hours State law may require daily overtime Regular rate: supplementary earnings Overtime The FLSA requires employers to pay all nonexempt employees at least one and one-half times regular rate of pay for all hours worked over 40 hours each workweek (during established 168-hour period consisting of seven consecutive days). In certain special cases, such as hospitals and nursing homes, you can use over 80 hours in a two-week period rather than 40 hours per week. This “8 and 80” allows greater scheduling flexibility in a two-week period, but does require paying the minimum rate for all hours over 8 worked in any given work day. The workweek can begin on any day of the week and at any hour decided by the employer. It is a period of 168 hours during the following seven 24-hour periods. State law may require daily overtime. Regular rate includes supplementary earnings such as commissions, non-discretionary bonuses or shift premiums. An employer may require an exempt employee to work more than 40 hours in a workweek without having to pay a premium for overtime hours. For nonexempt employees the University of Michigan provides payment at the rate of time and one-half for hours worked in excess of 40 hours per week (SPG ). While schedules should not change day-to-day to avoid a special need for additional work hours and overtime compensation, you can change work schedules to accommodate the needs of your unit. According to SPG regarding Work Schedules, you should provide regularly recurring consecutive hours of work where practicable. ©Copyright 2004 The Regents of the University of Michigan

Hours of Work January 2005 All time which employer requires, suffers or permits Nonexempt employees Hours of Work In order to implement its minimum wage and overtime provisions, the FLSA had to define the work hours for which payment is due. The term “hours of work” is defined as all time in which the employer requires, suffers or permits the employee to be on duty at a prescribed workplace or on employer’s premises. All hours worked must be paid to nonexempt employees. Only hours worked count in the overtime calculation. Therefore, holidays not worked, vacation days, sick days, etc., are not counted. The fact that an employee receives holiday pay, vacation pay, or sick pay is of no consequence for overtime purposes. The test is hours worked rather than hours paid. At the University of Michigan only hours worked count in the overtime calculation. Although overtime must be computed weekly, FLSA does not require that it be paid on a weekly basis; it only requires that overtime be paid in the next regular pay period following the period in which the overtime is earned. The University of Michigan chooses to pay nonexempt employees on a biweekly pay frequency. ©Copyright 2004 The Regents of the University of Michigan

Rest and Meal Periods January 2005 None required Rest periods Meal periods Rest and Meal Periods None required under FLSA Rest periods of 5 to 20 minutes count as hours worked The University of Michigan’s policy concerning rest periods (SPG ) states “There will normally be a rest period which may be taken at a time and place and in a manner which does not interfere with the efficiency of the department. The rest period will be with pay and will not exceed 15 minutes for each 4 hours of work. The rest period is intended to be a recess to be preceded and followed by an extended work period. Consequently, it may not be used to cover a staff member’s late arrival to work or early departure, to extend the lunch period, nor may it be regarded as cumulative if not taken.” Bona fide meal periods of 30 minutes or more are not hours worked The University of Michigan’s policy concerning lunch periods (SPG ) states “Departmental lunch periods when unpaid are either thirty (30) minutes or sixty (60) minutes in duration and are scheduled by the department. When the lunch period is a paid part of the regularly scheduled work day, it shall not exceed twenty (20) minutes. In these cases, staff members are expected to eat their lunch as time and the work schedule permit.” Working meal or break periods count as hours worked. If the employee is not fully relieved of responsibility, the break is for the benefit of the company. ©Copyright 2004 The Regents of the University of Michigan

Lectures, Meetings and Training Programs
The FLSA at the University of Michigan January 2005 Lectures, Meetings and Training Programs Attendance is work time if: Required by the employer Nonattendance would adversely affect employment Attendance is not work time if: Outside of working hours Voluntary Not directly related to the job No productive work during attendance Lectures, Meetings and Training Programs The most misunderstood part of the test for whether lectures, meetings and training time are hours worked is the decision about when attendance is voluntary or involuntary. Attendance is work time if: It is required by the employer The employee is given to understand or led to believe that present working conditions or the continuance of employment would be adversely affected by nonattendance Attendance is not work time if all of the following four criteria are met: Attendance is outside of the employee’s regular working hours. Attendance is in fact voluntary The course, lecture, or meeting is not directly related to the employee’s job The employee does not perform any productive work during such attendance FLSA Ref. Title 29, Part 785 of the Code of Federal Regulations, Section and ©Copyright 2004 The Regents of the University of Michigan

“On Call” Time January 2005 Engaged to wait Waiting to be engaged “On Call” Time Engaged to wait – All hours the employee is “engaged to wait” are considered hours worked Employee required to stay on company premises, or close enough that employee is not free to pursue his/her own interests A person hired to do nothing, or who is hired to wait for something to do (or happen), is still working The University of Michigan’s policy (SPG 201.6) states employees engaged to wait are working and are paid straight pay. Overtime and shift differential are paid where appropriate (SPG ). Waiting to be engaged Employee who is “on call” must be able to use the time for their own purposes Can require employee to be accessible by phone or pager Anytime spent responding to calls is hours worked “On Call” time at the University of Michigan is paid at the rates posted on the University HR Compensation & Classification Website for employees engaged to wait. Overtime and shift differential are paid where appropriate (SPG ). Once the employee engages in work, they resume back to regular pay. Overtime and shift differential are paid where appropriate (SPG ). The University of Michigan practice (SPG 201.6) dictates that non-exempt employees who are required to return to work will receive overtime for time worked and shift differential if applicable or a minimum of four hours of pay at their regular rate of pay plus shift differential, whichever is greater. Employees in an “on call” status are not eligible for call back pay (SPG ). ©Copyright 2004 The Regents of the University of Michigan

Travel Time January 2005 Hours to work is not hours worked Operating a vehicle for employer is hours worked Out of town travel and work hours During employee’s normal work hours Outside employee’s normal work hours Overnight travel Travel Time The time spent by nonexempt employees in travel from domicile to workplace is generally not considered time worked. If the employee makes a trip by operating a vehicle on the employer’s behalf (such as a van pool driver), the trip is counted as hours worked. Any other travel required by the employer during the employee’s normal work week is usually counted as hours worked, even if it occurs on the employee’s normal day off. Example: A nonexempt day-shift employee required to travel to another city and return in the same work day, would be “working” until final return. Example: A nonexempt day shift employee required to make a business flight in the late evening would not be “working,” but the same employee making a similar flight during the day shift hours on Sunday would be “working.” Employee regularly works 8:00 – 5:00 Monday through Friday Same day travel to another city that starts before or after the employee’s regular work hours or ends after regular work hours, is generally compensable Travel on a day not normally worked, but during hours normally worked is generally compensable ©Copyright 2004 The Regents of the University of Michigan

Record-Keeping Requirements
The FLSA at the University of Michigan Record-Keeping Requirements January 2005 No particular form required Must be kept at least three years Include basic employee information Record-Keeping Requirements Employers are required to keep records on wage, hours, and other items of information for all of their employees. No particular form required with regards to exempt employees but the following records must be maintained for nonexempt employees: Name, home address, and birth date if the employee is under 19 years of age Sex and occupation Hour and day when workweek begins Regular hourly pay rate for any week when overtime is worked Hours worked each workday and total hours worked each workday Total daily or weekly straight time earnings Total overtime pay for each workweek Deductions or additions to total wages paid each pay period Date of payment and pay period covered Must be kept at least three years Include basic records of employee information (such as sex, name, address, date of birth, occupation, pay and hours worked on a weekly basis) ©Copyright 2004 The Regents of the University of Michigan

What FLSA Does Not Require
The FLSA at the University of Michigan What FLSA Does Not Require January 2005 Pay for time not worked Time clocks Premium pay Exempt/nonexempt differentiation Raises or benefits Discharge notice or reason Pay stubs or W-2s Limit on hours worked What FLSA Does Not Require There are a number of misconceptions in regards to the FLSA. It is often believed to mandate certain requirements that it does not cover. These requirements may (or may not) be covered under another act. FLSA does not require the following: Pay for time not worked Time clocks to record hours worked Premium pay for Saturday, Sunday, holiday, or sixth- or seventh-day work Hours worked in excess of eight per day unless the employer chooses the 8/80 option Differentiation between exempt and nonexempt employees in any other way than minimum wage payments, overtime premiums, and records Pay raises or fringe benefits A discharge notice, reason for discharge or immediate payment of final wages to terminate employees Pay stubs of W-2s A limit on number of hours in a day, or days in a week, an employee may be required or scheduled to work (if the employee is at least 16 years old) Vacation Holiday Severance Meal periods of 30 consecutive minutes or more, duty free Sickness Rest periods greater than 20 consecutive minutes ©Copyright 2004 The Regents of the University of Michigan

Common FLSA Violations
The FLSA at the University of Michigan Common FLSA Violations January 2005 Misclassification of employees as exempt Improper payment for break time On-call time Training time Travel time Common FLSA Violations Misclassification of employees as exempt: The Labor Department will take great care to confirm what criteria the employer used to establish exemption. What they are really looking for are attempts by employers to avoid the overtime penalty. Improper payment for break time: Any break of five to twenty minutes must be considered hours worked. Breaks greater than twenty minutes are not hours worked. Bona fide meal periods of 30 minutes or more are not hours worked. On-Call time: Whenever the employer requires an employee to be on call and the employee is not free to pursue the majority of his/her normal non-work activities, the on-call time is considered hours worked. Training time: If the time spent in training is during the regular hours of work, if any job-connected work is produced during training, or if the training is considered a requirement for the ongoing employment relationship (that is, training is not voluntary), the hours in training and some amount of study time must be considered hours worked. Travel time: A nonexempt employee traveling on company business must be paid within the framework of the FLSA provisions. Many employers think that nonexempt employees are somehow grateful for the opportunity to travel and have the company pay for the airplane ticket. It is this innocent ignorance that can prove embarrassing. ©Copyright 2004 The Regents of the University of Michigan

Common FLSA Violations
The FLSA at the University of Michigan Common FLSA Violations January 2005 Compensatory time off Failure to pay for unauthorized hours worked Bonus pay exclusion from regular hourly rate Failure to pay for all recorded hours Inaccurate records Common FLSA Violations Compensatory time off: For the majority of employers, there is no such thing as compensatory tine off for nonexempt employees. The simplest way to ensure compliance with the FLSA is to pay every nonexempt employee for all hours worked in the week that they are worked. If those hours worked exceed 40, under the act, pay time and one-half for all such hours. Failure to pay for unauthorized hours worked: The fact that you told your employees to leave their work stations for lunch and not show up early or leave late will not reduce your responsibility, Remember, the act specifies that you must pay the employee for all hours you “suffer, permit, or allow” the employee to work. If this situation persists, disciplinary action would be advisable. Bonus pay exclusion from regular hourly rate: With the growing interest in variable pay, at-risk pay, gainsharing, lump-sum merit bonuses and the like, it is critical that your legal counsel and/or the Labor Department be consulted before you implement a plan. You certainly do not want to find out via an audit that you have not included bonus earnings in the regular rate of pay. There is a strong likelihood that the Department would consider this not only a violation, but a willful violation of the act’s provisions. Failure to pay for all recorded hours: One of the risks for using time clocks is that employees do not generally clock in at precisely the shift start time. The time represented on the official time card vs. the tine the employer actually pays the employee for may differ and may serve as an area of contention. Even for those companies that do not use time clocks, if your practice is not to pay for lunch time, but the employees record only their “start” and “stop” times, the official record of time will differ from the actual hours paid for. Inaccurate records: There are a number of ways that this can occur. Failure to pay for all recorded hours is arguably one of the ways that time records are inaccurate. Employees making changes, supervisors altering records, or lost records, someone else recording (punching in) as employee, are all ways that record keeping can become suspect. Great care must be taken to ensure that the recording of time and payments of nonexempt employees are handled correctly – these are legally required documents. ©Copyright 2004 The Regents of the University of Michigan

The Fair Labor Standards Act at the University of Michigan

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The Fair Labor Standards Act at the University of Michigan

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