HR Advisor August 2004

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HR Advisor

MRSC has joined with Janice Corbin and Janet May, Partners, Sound Employment Solutions, Rhonda Hilyer, President, Agreement Dynamics,and Bruce Schroeder, Employment/Litigation Attorney, Summit Law Group, to bring you the "HR Advisor" article series on employment and labor law issues affecting Washington local governments. The "HR Advisor" will feature a new article each month with timely HR management information and advice you can use.*

New FLSA White Collar Exemption Regulations: More Hype than Substance?

August 2004

Bruce Schroeder
Employment/Litigation Attorney
Summit Law Group

On April 20, 2004, the Federal Department of Labor issued its long-awaited revisions to the White Collar Exemption regulations. The proposed changes to these regulations had been released approximately a year earlier. Few regulatory actions have generated as much hyperbole and misinformation as these new white-collar regulations. This article recaps the practical impact of the new FLSA regulations, set to become effective on August 23, 2004. This article also addresses the interplay between these new regulations and the preexisting regulations governing exemptions from the Washington Minimum Wage Act. It is our conclusion that the new regulations will have very little impact on changing how public agencies categorize employees as exempt for overtime compensation.

General Nature of White Collar Exemptions

By far the largest category of exemptions relevant to most employers is collectively referred to as the "white collar exemptions." White collar exemptions include executives, administrative employees, and professionals. There are specific requirements for each of these exemptions, but some requirements are common to all. Not all white collar workers qualify for an exemption. For example, a receptionist paid a monthly salary is not exempt and qualifies for overtime.

It is important to remember that qualification for any of the three white collar exemptions is based on the specifics of each position. The employee's actual duties, rather than the job title or job description, define whether an employee is exempt.

Employers must be careful about making automatic decisions based on where a position falls within their organizational structure. For example, many Washington public employers have adopted a classification system grouping positions in ranges. Some of these employers determine exempt status based solely on consideration of the position's range. This practice is risky. Often there are stark differences in the level of responsibility between positions that are in the same range. Each of the three white collar exemptions has two necessary components: (1) the salary basis test and (2) the duties test. Both tests must be satisfied in order for an employee to be treated as exempt under the FLSA.

Federal Regulation Changes to the White Collar Exemptions

The Federal Department of Labor recently issued new regulations governing the white-collar exemptions from the FLSA. Absent some legislative action, the new regulations will take place on August 23, 2004. Those regulations represent the first change to the salary component of the exemption since 1975 and the duties component since 1949. Although the regulations have generated significant media attention, for most public sector jobs, they will have little impact on changing current placement of employees. As always, employees must meet the salary basis test and the duties test in order to be considered exempt.

Summary of Regulatory Changes

The Department of Labor has eliminated the separate "short" and "long" tests.
The minimum salary level has increased from $250 per week (for the short test) to $455 per week ($23,660 per year).
To be an exempt executive, the new regulations require that an employee must have authority to hire or fire employees or that the employee's suggestions and recommendations as to hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
The earlier proposed change to the exempt administrative employee regulations that would have substituted a "position of responsibility" test for the "discretion and independent judgment" test was dropped in the final regulations. The new regulations do update with more modern examples of what are and are not generally administrative exempt job duties.
In an apparent effort to address political fallout from organized labor in law enforcement and fire, the final regulations include a "first responder" regulation which indicates that the white collar exemptions generally do not apply to lower level management staff within police and fire departments.
The Department of Labor updated the professional exemption to include more modern examples of who may be exempt professionals. The general framework for the professional exemption is maintained, but the regulations now provide that an employee need not always obtain a degree in a field of science or learning which is customarily acquired by a prolonged course of specialized intellectual instruction. Work experience may potentially substitute for some intellectual instruction.
The creative professional and computer professional exemptions have not been materially changed.
The Department added a "highly compensated employee" streamlined exemption. If an employee is paid at least $100,000 per year, they need only one exempt duty from any of the duties tests in order to be treated as exempt.
The salary basis rules have been modified to allow suspensions for disciplinary reasons in full day rather than full week increments for violations of written workplace conduct rules.
The final rules also give heightened protections to employers for inadvertent violations of the salary basis test. Now an employer will not lose the exemption for any employees, absent a willful violation of policy, if the following actions are taken: (1) the employer clearly communicates a policy prohibiting improper deductions and including a complaint mechanism; (2) the employer reimburses employees for any improper deductions; and (3) the employer makes a good faith commitment to comply with the salary basis test in the future.
Although the final regulations may not have made as dramatic a change as first announced, this is an ideal time for employers to reassess the appropriate placement of employees.

Status of Washington State's FLSA Parallel

If it were not complex enough to analyze positions under the FLSA's test, Washington has its own independent wage hour law, the Washington Minimum Wage Act, which has its own test for White Collar Exemptions that will be somewhat inconsistent from the new regulations. The standard doctrine under the wage hour laws is that an employer must satisfy whichever law, state or federal, is more generous to employees. The current Labor & Industries regulations followed the old FLSA regulatory structure. This included the provisions for a short and long test for the Executive, Administrative and Professional Exemptions. The Labor & Industries regulations also include the $250 per week salary threshold rather than the $455 per week threshold set forth in the new FLSA regulations.

What does this practically mean to a public employer in Washington State? Clearly, if exempt employees are paid less than $455 per week, they cannot be treated as overtime exempt. Also, employees who satisfy the duties test under the old Executive regulations may not satisfy the new combined test under the FLSA. For example, an employee could be exempt as an Executive where their primary duty consists of the management of the enterprise in which it is employed or customarily recognized department or subdivision of the enterprise, and where the employee customarily and regularly directs the work of two or more employees. The new FLSA regulation requires that in addition, an employee must have authority to hire or fire employees or that employee suggestions and recommendations as hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. Certain public employees may have difficulties satisfying this additional test. For example, those employees working in environments where civil service primarily dictates hiring and firing and promotion may have little role in these change of status situations.

As for any differences on the Administrative and Professional exemptions under the Washington State law, there should be very few problems in light of the new FLSA regulations. The only major issue would be if Administrative or Professional exempt employees are paid less than $455 per week. If so, they must be converted to overtime eligible because of the new FLSA regulations.

One more esoteric difference between the Washington State and FLSA regulations involves disciplinary suspensions. The new FLSA regulations relax the restrictions on disciplinary suspensions by allowing such suspensions to be made in full day increments rather than full week increments as was the case under the old FLSA regulations. There is no similar change under the Washington law. New regulations were adopted in January 2003 by the Department of Labor & Industries for the Washington Minimum Wage Act which in part requires disciplinary suspensions to be done in full week increments with rare exceptions. Thus, public employers who desire to impose discipline on White Collar exempt employees should continue to do so in full week increments or should consider doing paid decision making leave which does not reduce the pre-determined salary.

Impact of First Responder Regulations

More criticism of the Department of Labor's proposed FLSA regulations was received from law enforcement and firefighter unions than almost any other group. In an apparent attempt to calm organized labor in these areas, the Department of Labor included a "first responder" regulation in the final regulations. The new regulations make clear that police officers, firefighters and other first responders are not exempt unless they satisfy the executive or administrative exemption listed above. This may be difficult for some current exempt employees due to the additional requirement under the executive exemption to hire and fire or have the authority to make recommendations for such personnel decisions that are given "particular weight."

The new regulations express skepticism about qualifying law enforcement and fire personnel as exempt under either the executive, administrative or professional exemptions. The relevant regulation provides:

The [white collar] exemptions and the regulations in this part also do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports or other similar work. 29 C.F.R. § 541.3(b)(1). The regulations put a heightened emphasis on the actual supervisory responsibility of command staff in police and fire departments in order to qualify as an executive exemption.

Conclusion

The final impact of the Department of Labor's new FLSA regulations will take some time to sort out. However, it is likely that certain private sector industries will have more compliance problems than will the traditional public sector agency. The Department of Labor estimates that payroll expenses will increase by 9.8 million dollars for all state and local governments in the first year of compliance. That is less than 1/100 of a percent of total payroll expenditures. Public employers in Washington must continue to abide by the more generous provisions of either the FLSA or the Washington State Minimum Wage Act. This is likely to have very little practical impact for most public sector employers. With the effective date of the new FLSA regulations in late August 2004, this is an ideal time for public employers to reevaluate their exempt positions to ensure that they are correctly categorized.

Bruce Schroeder is an employment / litigation attorney with Summit Law Group, Seattle. Bruce's practice is concentrated on representing management in the entire range of employment law matters. More.

Janice Corbin is a partner with Sound Employment Solutions, LLC, Seattle. Janice has over 15 years of human resources experience with the Seattle Police Department and the International Harvester Truck Company and has worked in the law enforcement field for over 22 years. More.

Janet May is a partner and attorney with Sound Employment Solutions, LLC, Seattle. Janet has over ten years of experience in the labor and employment law field, and has represented both management and labor. More.

Rhonda Hilyer, President and Founder of Agreement Dynamics, is an international consultant with a reputation for helping convert traditional, conflict-based environments into productive, collaborative ones. More.

*The Articles appearing in the "HR Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.