Q: I know that the FLSA salary basis changes on December 1, 2016. So, as long as my salaried employees make at least $47,476 I am in compliance, right?
A: Not necessarily.
Earlier this year the U.S. Department of Labor issued new regulations which raised the salary basis requirement under the Fair Labor Standards Act (FLSA). However, in order to be considered exempt from overtime under the FLSA, the employee must generally meet both a duties test as well as a salary basis test.
We already know that the salary basis test will change beginning December 1st. While the new regulations did not change the duties tests, you can’t really review one part of the exemption test without also reviewing the other. Below we have included some of the most common ways an employee can satisfy the duties test. Before you read on, however, remember that in order to properly apply an exemption to any employee, we must review all of the facts and circumstances surrounding the employment relationship and the employee’s actual job tasks and duties. Identifying the proper test is the easy part. Applying the facts of employment to the test is much more difficult.
All factors in each exemption must be met in order for the exemption to apply:
- Meets salary basis test;
- Primary duty is managing the enterprise, or managing a customarily recognized department of the enterprise;
- Regularly directs the work of at least two full-time employees; and
- Has authority to hire or fire employees, or at minimum the employee’s suggestions and recommendations as to hiring, firing, advancement, promotion, or any other change of status of other employees is given particular weight.
- Meets the salary basis test*;
- Primary duty must be 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; and
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Common occupations that may qualify an employee as an exempt Professional include: doctors, lawyers, teachers, engineers, accountants, actuaries, scientists, architects, and pharmacists.
*Note that the salary basis requirements do not apply to bona fide teachers, lawyers, or doctors.
- Meets salary basis test;
- Primary duty is 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.
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; and similar activities.
Discretion and independent judgment
In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. 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 implies that one has authority to make an independent choice, free from immediate direction or supervision. However, discretion and independent judgment can be exercised even if the decision or recommendation is reviewed at a higher level. Thus, the term “discretion and independent judgment” does not require that the decisions being made have to be final or free from review. The fact that one’s decisions may be subject to review and that upon occasion the decisions are revised or reversed after review does not mean that one is not exercising discretion and independent judgment.
The phrase “discretion and independent judgment” must be applied in the light of all the facts involved in the particular situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to:
- whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
- whether the employee carries out major assignments in conducting the operations of the business;
- whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business;
- whether the employee has authority to commit the employer in matters that have significant financial impact;
- whether the employee has authority to waive or deviate from established policies and procedures without prior approval;
- whether the employee has authority to negotiate and bind the company on significant matters;
- whether the employee provides consultation or expert advice to management;
- whether the employee is involved in planning long- or short-term business objectives;
- whether the employee 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.
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.
Computer Employee Exemptions
Certain computer employees may be exempt from overtime. These employees must meet the salary basis requirement or be paid an hourly rate of not less than $27.63 per hour. In addition to meeting the salary basis requirement, the computer employee must be employed as a systems analyst, computer programmer, software engineer, or similarly skilled position and have a primary duty that consists of:
- 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 the above duties, the performance of which requires the same level of skills.
Note that employees who analyze software and provide technical support for business users by loading and implementing programs to businesses’ computer networks, educating employees on how to use the programs and by aiding them in troubleshooting (in other words, IT “Help Desk” personnel) and similar positions do not meet the duties test for this exemption, nor do workers who repair computer equipment.
There are two main exemptions for sales employees. The salary basis test does not apply to either of these exemptions. If all of the factors are satisfied, then Outside Sales employees are exempt from both minimum wage and overtime. On the other hand, Retail Sales employees may be exempt from overtime, but have a separate wage base requirement which must be satisfied in order to be considered exempt under the law.
- Primary duty is making sales or obtaining orders/contracts for services for which consideration will be paid by the client; and
- Customarily and regularly engaged away from the employer’s place or places of business (on the road).
- Employed by a retail or service establishment (as defined in the FLSA);
- Paid at least 1.5 times applicable minimum wage for all hours worked; and
- More than half of the employee’s total earnings in a representative period must consist of commissions.
For more information and assistance in this process, please contact a member of the Rhoades McKee Human Resource and Employment Law Team.
HR in Focus is a blog provided for informational purposes only and does not constitute legal advice. Employers are welcome to submit questions for consideration on the blog, however, submission of a question or the posting of any response to a question does not create an attorney-client relationship with Rhoades McKee. Employers with specific issues or questions about the law should seek the assistance of an attorney.