The final regulations contain a number of significant changes:

1)           Employees must be paid $455.00 per week ($23,660 annual salary) in order to meet the exempt salary test;

2)           The regulations concentrate on the “primary duty” of the executive, administrative or professional job classification and not on the percentage of time an employee spends in performing exempt and non-exempt work;

3)           First responders, police officers, detectives, firefighters, paramedics, licensed practical nurses, paralegals, and blue-collar workers are generally considered to be non-exempt and must be paid overtime pay;

4)           Employers may suspend exempt employees for less than a week, under certain circumstances, for violation of particular work place conduct rules (not attendance or productivity rules) without violating their exempt status; and

5)           Deducting or withholding pay from a salaried employee will generally not result in that employee’s exempt status being compromised, if certain procedures are in place.

While there are substantial changes made by the regulations, the new regulations do not affect many concepts and principals such as:

1)           How overtime pay is calculated;

2)           The fluctuating work week;

3)           Record keeping requirements;

4)           What constitutes compensable time;

5)           Rules for seasonal employees;

6)           The 207(k) partial exemption for law enforcement employees and fire fighters; and

7)           Compensatory time for public employees;

Exemption Criteria:

            The test for each exempt category of job is summarized below.

Executive Employees:

·    Paid a salary of at least $455 per week / $23,660 annually;

·    Primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision of the enterprise;

·    Customarily and regularly directs the work of two or more full-time employees or their equivalent; and

·    Must have authority to hire or fire, or change the employment status of other employees (or whose suggestions and recommendations as to such must be given particular weight).

Administrative Employees:

·    Paid a salary of at least $455 per week / $23,660 annually;

·    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.

Professional Employees:

·    Paid a salary of at least $455 per week / $23,660 annually;

·    Primary duty is the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired  by prolonged course of specialized intellectual instruction; or,

·    Primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employees:

·    Paid a salary of at least $455 per week / $23,660 annually or $27.63 per hour;

·    Primary duty consists of:

○       The application of systems analysis techniques and procedures, to determine hardware, software or system functional specifications (this may include consulting with users);

○       The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, either based on and related to user or system design specifications or related to machine operating systems; or;

○       A combination of the two.

            Outside Sales Employees:

·    There are no minimum salary requirements;

·    Primary duty consists of:

○    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; and,

○    Customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.

Highly Compensated Employees:

·    Paid a salary of at least $100,000 annually;

·    Customarily and regularly performs any single one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee; and,

·    Performs office or non-manual work.

            Clarification of Salary Basis:

            When may an employer make a deduction from an employee’s salary without jeopardizing his or her exempt status?  In general, being paid on a “salary basis” means that the employee receives a predetermined amount each pay period which is not subject to reduction because of variations in the quality or quantity of work performed.  With certain specified exceptions, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.  Those exceptions are:

●   Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability;

●   Deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by sickness or disability (deductions may also be made for full-day absences before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance thereunder);

●   An employer may offset any amount received by an absent employee as jury fees, witness fees, or pay for temporary military leave against the salary due for that particular week;

●   Deductions from pay (in any amount) may be made for penalties imposed in good faith for infractions of safety rules of major significance;

●   Deductions from pay may be made for unpaid disciplinary suspension of one or more full days imposed in good faith for infractions of workplace conduct rules.  Such suspensions must be imposed pursuant to a written policy applicable to all employees;

●   An employer is not required to pay the full salary in the initial or terminal week of employment; and,

●   An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the FMLA.

            Safe Harbor Provisions:

            An employer who makes improper deductions from the salary of those employees it characterizes as exempt loses the exemption if the facts demonstrate that the employer “did not intend” to pay the employees on a salary basis.  An “actual practice” of making improper deductions demonstrates that the employer did not intend to pay the employees on a salary basis.

            Factors used in determining whether the employer has an actual practice of making improper deductions include: the number of improper deductions; the number and geographic location of employees whose salary was improperly reduced; the number and geographic location of managers responsible for taking the improper deductions; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

            Finding of an Actual Practice:

            If it is determined that there is an actual practice of making improper deductions, the exemption is lost during the time period in which the improper deductions were made for those employees in the same job classification working for the same managers who are responsible for the actual improper deductions.

            Improper Deductions that are Isolated or Inadvertent:

            Isolated or inadvertent deductions will not result in the loss of the exemption for any employees subject to the improper deductions, provided the employer reimburses the employees for the full amount of the improper deduction.

            Impact of a Written Policy:

            If an employer has a “clearly communicated” written policy prohibiting improper deductions (including a complaint procedure), reimburses employees for any improper deductions, and makes a good faith commitment to comply in the future, 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.

Steps to Compliance

            Review employees’ salaries:

            Regardless of their job duties and responsibilities, employees paid below the new minimum salary level of $455/week, or $23,660/year, are not exempt from the FLSA.  Therefore, employers need to identify those employees with salaries less than $23,660/year, and consider increasing those persons' salaries to support an argument for exempt status.

            Policy concerning improper deductions and complaint procedure:

            Employers need to develop a clearly communicated policy concerning improper deductions which includes a complaint procedure.  Employers should distribute this policy to employees when they are hired; include this policy in their employee handbooks, and/or posting this policy on the employers’ Intranet, website, or bulletin board.

            Review of jobs and revisions to job descriptions:

            Employers need to conduct comprehensive reviews of their jobs to determine which ones encompass executive, administrative, and/or professional duties as defined in the revised “white collar” regulations.  Employers should carefully review the exempt and nonexempt classifications they have assigned to white collar employees to ensure that those classifications will remain appropriate after the new regulations go into effect.  Misclassifying employees as exempt can expose employers to substantial liability for unpaid overtime, particularly if employees frequently work more than 40 hours per week.  After conducting these job analyses, employees need to revise their job descriptions to ensure that they are accurate in terms of the skills required and work performed.

            Audit payroll practices annually or bi-annually:

            Employers often fall out of compliance due to changes in job assignments and duties.

            “Blue collar” workers not exempt:

            The revised regulations expressly state that exemptions do not apply to certain workers, including manual laborers or other “blue collar” workers who perform repetitive work with their hands, physical skill and energy.  For example, 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 “blue collar” workers are not exempt no matter how highly paid they might be.