Employee Benefits Alert

Transcription

1 Employee Benefits Alert Issue No. 20 Legal & Research Group September 2004 Benefits Brokerage & Consulting Services Rx Purchasing Coalition HR Consulting Data Analysis Benefits Administration Retirement Services Predictive Modeling Call Center Services Voluntary Benefits Consumer Driven Healthcare Legislative & Compliance International Benefits On August 23, 2004, the U.S. Department of Labor s ( DOL ) new exempt status rules for white collar employees under the Fair Labor Standards Act ( FLSA ) (29 C.F.R. 541, et seq.) became effective. The revised regulations, which modernized the standard to determine whether executive, administrative, professional, outside sales and computer employees are exempt from the overtime requirements of the FLSA, represent the first significant modification of the FLSA rules in over 50 years. The DOL estimates 1.3 million low-wage workers, such as office workers, paralegals, and cooks will benefit from the new regulations. Background The general wage and hour rules are recognized by practically everyone. The FLSA requires covered employers to pay their employers at least federal minimum wage and overtime pay of one-and-one-half times the regular rate of pay for all hours worked over 40 in a single week. There are numerous exemptions from the minimum wage and overtime requirements. For example, the FLSA states that any employee employed in a bona fide executive, administrative, or professional capacity (or in a capacity of outside salesman ) is exempt from the minimum wage and overtime requirements (thus, the term exempt employee ). The FLSA, however, fails to define the terms executive, administrative, or professional. Accordingly, the DOL had developed several tests to define these exemptions. The new regulations modify these tests, as well as significantly raise the minimum salary under which employees cannot be defined as exempt. New Regulatory Requirements The new regulations significantly modify the FLSA. The following are some of the highlights of the new regulations: Revised Salary Minimum: Workers earning less than $23,660 per year ($455 per week) will automatically be eligible for overtime pay. This amount is up from $8,060. The previous rules included a short test and a long test for determining exempt status. The new regulations do away with these tests. Instead, the minimum salary is the standard test. Highly Compensated Professionals: Under the new regulations, if an employee earns a total annual compensation of $100,000 or more, which includes at least $455 per week paid on a Willis Employee Benefits Alert is produced by Willis Legal & Research Group. The information contained in this publication is not intended to represent legal advice and has been prepared solely for educational purposes. You may wish to consult your attorney regarding issues raised in this publication. Willis publications appear on the internet at: Copyright 2004

2 Page 2 salary basis, and performs one or more of the exempt duties of an exempt executive, administrative or professional employee, that employee is considered a highly compensated employee and is exempt from earning overtime. Public Safety Employees: The new regulations state that police officers, firefighters, paramedics, and other similar public safety employees are entitled to overtime pay. Manual Laborers: The new 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. Disciplinary Deductions: The new regulations permit an employer to suspend an exempt employee without pay for serious conduct violations such as sexual harassment or workplace violence. Partial-week suspensions are permissible under the new regulations in response to serious misconduct. Formerly, deductions could only be made as penalties imposed for infractions of safety rules of major significance for one or more full workweeks. Safe Harbor: The new regulations include a safe harbor that will preserve an employee s exempt status in the event impermissible deductions are made. An exempt employee s status as such will not be overturned if the employer: (a) has a clearly communicated policy prohibiting improper deductions, including a complaint mechanism; (b) reimburses employees for any improper deductions; and (c) makes a good faith commitment to comply in the future. This safe harbor is not available, however, if the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints. This test replaces the so-called window of correction for improper deductions. Final Job Duties Tests: In determining whether an employee is an exempt executive, administrative, or professional employee, a final job duties test is applied. To qualify as an exempt executive employee, the following test must be met: 1. The employee must have a primary duty of managing the enterprise in which the employee is employed or one of its customarily recognized departments or subdivisions; 2. The employee must customarily and regularly direct the work of two or more other employees; and 3. The employee must have the authority to hire or fire other employees or make recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees which are given particular weight. In determining whether an employee s suggestions and recommendations are given particular weight, various factors will be considered, such as whether it is part of the employee s job duties to make suggestions and recommendations; how often

3 Page 3 such recommendations are made or requested; and how often those recommendations are relied upon. The FLSA provides a different test for company owners. The FLSA states that an employee who owns 20 percent or more of the equity in the enterprise that employs him or her and is actively engaged in the enterprise s management is exempt. These equity owners do not have to meet the tests set forth above. To qualify as an exempt administrative employee, the following test must be met: 1. The employee s primary duty must consist of the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer s customers; and 2. The employee s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. The term primary duty means the principal, main, major or most important duty that the employee performs. A primary duty determination is a fact specific test based on the situation. Employees who spend greater than 50 percent of their time performing exempt work will generally satisfy the primary duty requirement. To qualify as an exempt professional employee, the following test must be met: 1. The employee s primary duty must require knowledge of an advanced type (defined as work which is predominately intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment) in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or 2. 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. What to do to Bring Your Company into Compliance Identify white collar employees earning less than $23,660. Employees with salaries of less than $455 per week who were exempt under the old rules may now be nonexempt. One option available to employers is to raise salaries to $455 per week/ $23,660 per year, which may make the employees exempt from overtime.

4 Page 4 Analyze jobs/review job descriptions. Analyze jobs to determine which employees perform administrative, professional, and executive duties that would make them exempt from overtime. Additionally, job descriptions should be reviewed to ensure that they accurately state the work performed and skills required. Payroll. Ensure that payroll systems are updated and take into account the new overtime regulations. Unionized employers. Unionized employers are still governed by any collective bargaining agreements in place. The new regulations do not effect any overtime provisions set forth in the union contract if the contract provides for overtime beyond what is required by the new regulations. Review discipline policies. The new regulations permit an employer to suspend an exempt employee without pay for serious conduct violations such as sexual harassment or workplace violence. Partial-week suspensions are permissible under the new regulations in response to serious misconduct. Employers may decide to modify their employee handbooks to allow pay docking in less than full workweek increments for exempt employees for serious conduct violations. The FLSA rules are the minimum standards that must be followed. Therefore, employers should consult applicable state law, which may provide additional coverage. Further information on the new overtime exemption regulations can be found on the Department of Labor s website, located at: This Employee Benefits Alert was prepared by Willis HR Partner Department. If your company is seeking Human Resource expertise, please contact your local Willis office and ask what HR Partner can do for you.

5 Page 5 U.S. Benefit Office Locations Benefits Brokerage & Consulting Services Rx Purchasing Coalition HR Consulting Data Analysis Benefits Administration Retirement Services Predictive Modeling Call Center Services Voluntary Benefits Consumer Driven Healthcare Legislative & Compliance International Benefits Anchorage, AK (907) Denver, CO (720) Milwaukee, WI (414) Portland, OR (503) Atlanta, GA (404) Eugene, OR (541) Minneapolis, MN (763) Raleigh, NC (919) Baltimore, MD (410) Florham Park, NJ (973) Mobile, AL (251) Rochester, NH (603) Bethesda, MD (301) Ft. Worth, TX (817) Montgomery, AL (334) Roswell, NM (505) Birmingham, AL (205) Greenville, SC (864) Mountain View, CA (650) St. Louis, MO (314) Boston, MA (617) Houston, TX (713) Naples, FL (239) San Diego, CA (858) Cary, NC (919) Jacksonville, FL (904) Nashville, TN (615) San Francisco, CA (415) Charlotte, NC (704) Knoxville, TN (865) New Orleans, LA (504) San Juan, PR (787) Chicago, IL (312) Lake Mary, FL (407) New York, NY (212) Seattle, WA (206) Cleveland, OH (216) Lexington, KY (859) Orange County, CA (714) Tampa, FL (813) Columbus, OH (614) Los Angeles, CA (818) Philadelphia, PA (610) Washington, DC (301) Dallas, TX (972) Louisville, KY (502) Phoenix, AZ (602) Wilmington, DE (302) Detroit, MI (248) Miami, FL (305) Pittsburgh, PA (412)