The Fair Labor Standards Act (FLSA) requires, among other things, that employees be paid a minimum wage for all hours worked and an overtime premium for all hours worked in excess of forty in one work-week. The U.S. Department of Labor (DOL) issued its "Fair Pay" regulations, which revise the regulations providing for the white-collar exemptions to the Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements. Employees who meet certain duties and salary tests may fall under the executive, administrative, professional, outside sales, or computer associate categories of the white-collar exemption. The DOL's recent revision marks the first time the salary requirement has been revised in 30 years; the duties tests have not been revised since 1949. These new regulations are located at 29 C.F.R. Part 541, http://www.dol.gov/esa/regs/fedreg/final/2004009016.htm, and took effect August 23, 2004.

Who will be affected by the changes?

Most employers will be affected by the changes in some way. Even employers whose workforces are not significantly impacted by the changes should review their pay policies and procedures to ensure they are in compliance with the FLSA's requirements, since the significant publicity surrounding the changes has undoubtedly raised public awareness of the FLSA's requirements and may lead to more employee allegations of illegal pay practices.

The DOL estimates that 1.3 million white-collar employees earning less than $23,660 and currently classified as exempt will gain overtime eligibility under the final regulations regardless of the duties they perform. Under the current regulations, the minimum exempt salary is $8,060, that, according to the Society of Human Resources Management (SHRM), is a level so low that it had become irrelevant in the analysis of who was entitled to overtime and caused many lower-wage managerial jobs to be examined under duties tests that the DOL called "confusing, complex and outdated." In addition, the final rules guarantee overtime eligibility to another 5.4 million employees who earn less than the new $23,660 threshold but whose overtime rights were ambiguous under the current rules because of their duties.

The following points are highlights of the DOL's revisions:

• The final rule states that exemptions do not apply to manual laborers or other blue-collar workers performing repetitive work, such as non-management production workers, maintenance, and construction workers.
• The exemptions do not apply to police officers, fire fighters, paramedics, emergency medical technicians, and similar public safety employees.
• The "highly compensated" test in the final rule applies only to employees who earn at least $100,000 per year, a $35,000 per year increase over the amount in the proposed revisions.
• The "highly compensated" test in the final rule applies only to employees who receive at least $455 per week on a salary basis.

The final rule requires that exempt highly compensated employees must customarily and regularly perform exempt duties. Additionally, the final rule differs from the proposed revisions with regard to the specific categories of the exemption:

Executive:

• The final rule deletes the special rules applicable to "sole charge" executives.
• The final rule adds a requirement that employees who own a bona fide 20% equity interest in an enterprise are exempt only if they are actively engaged in the management of the enterprise.
• The final rule retains the requirement that an exempt executive must have either the authority to hire or fire other employees or must make recommendations about hiring and firing that are given particular weight but provides a new definition of "particular weight."

Administrative:

• The final rule eliminates the proposed "position of responsibility" test and the "high level of skill or training" standard for the administrative exemption.
• The final rule also reinstates the requirement (which was eliminated in the proposed rule) that administrative employees exercise discretion and independent judgment.

Professional:

• The final rule states that licensed practical nurses and other similar health care employees do not qualify as exempt professionals and retains the provisions of the existing regulations for registered nurses.
• The final rule does not make any changes to the educational requirements for the professional exemption. The references to training in the armed forces, attending a technical school, and attending a community college, which were contained in the proposed regulation, have been removed.
• The final rule provides that work requiring advanced knowledge, one of the three essential elements of the professional primary duties test, is work that is "predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment."

Permissible Deductions

The prior regulations provided for certain exceptions to the requirement that deductions cannot be made from an exempt employee's salary. The new regulations have not changed these exceptions, which permit deductions for:

• Absences of one or more full days for a personal reason other than illness or disability;
• Absences for one or more full days for sickness or disability;
• Offsets for jury duty pay, service as a witness, or military duty
• Penalties for infractions of safety rules of major significance;
• Intermittent leave under FMLA (Family Medical Leave Act).

In addition to the prior permissible deductions, the new regulations permit employers to take deductions from an exempt employee's salary for unpaid disciplinary suspensions of one or more full days for infractions of significant workplace conduct rules, such as those prohibiting sexual harassment or violence in the workplace. These suspensions may not be used for routine performance or attendance issues and must be pursuant to a written policy applicable to all employees.

In conclusion, the new regulations took effect on August 23, 2004. The DOL has formed a task force, headed by the Regional Administrator for the Northern Region of Wage and Hour Administration, to ensure enforcement. The task force has announced its intention to focus on employees earning slightly more than $23,660 annually, the new minimum salary level for exempt employees. Regardless of whether efforts to effectively nullify these regulations are successful, publicity surrounding wage and hour issues is certain to stimulate employee complaints and subsequent litigation. Therefore, employers may want to use the issuance of the new regulations as an opportunity to review their current practices with regard to classification of their employees and payment of overtime. However, any such review should be conducted cautiously and only under the guidance of counsel experienced in labor and employment law and especially wage and hour.