Employees of firms which are not covered enterprises under FLSA still may be subject to its minimum wage, overtime pay, and child labor provisions if they are individually engaged in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production.
Recent Changes to FLSA
The U.S Department of Labor (DOL) has strengthened overtime rights for 6.7 million American workers, including 1.3 million salaried white-collar employees who were denied overtime pay under previous rules.
Regulations governing overtime eligibility under the FLSA establish new criteria for determining whether employees are exempt from federal overtime requirements. Also know as the “FairPay” rules, the new regulations aim to clarify who qualifies for overtime pay.
The FLSA as it pertains to overtime for “white-collar” workers was long due for an overhaul. Regulations had not been substantially updated for more than 50 years. Vague guidelines over who is classified as exempt led to confusion between employers and employees, sometimes resulting in class-action litigation over presumed unpaid overtime. Below, are a few highlights of the new regulations:
- Previously, only workers earning less that $8,060 annually were guaranteed overtime. Under the new rules, the salary threshold nearly triples: Workers earning $23,660 or less will automatically be entitled to overtime pay.
- For employees earning more than $23,660 in annual salary, the new regulation clarifies what job responsibilities an employee must perform in order to be exempt form overtime requirements.
- The “FairPay” rules clearly state that emergency medical technicians, ambulance personnel, rescue workers, police officers, firefighters, paramedics, and other “first responders” are now entitled to overtime pay.
- Licensed practical nurses and other similar health care employees generally must be paid overtime, along with blue-collar workers who jobs require considerable physical skill and energy.
Employers will now have to conduct job analyses and evaluate each employee’s actual job duties and wages using the new rules’ criteria. This will help to determine which employees can be paid a salary and which workers need to “punch time cards” to ensure overtime compliance. The new “FairPay” rules are expected to take effect August 23rd, 2004. These final regulations are the result of more than a year of controversy between the DOL, Congress, employer advocator and organized labor. The DOL estimates that the changes will provide up to $375 million in additional earnings.
Section 13
During the week of April 19th, 2004, final regulation governing white collar exemptions of the FLSA were passed into law effective, August 23rd, 2004. Section 13 of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional, outside sales employees, and certain computer employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less that $455 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirement of the Department’s regulations.
Determining Exempt Status
Each position must be evaluated using three steps:
Step 1: Salary Test
Does the position pay more than $455 per week? If so, the position must still pass the requirements of Step 2 and 3 (listed below).
Step 2: Salary Basis Test
Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period basis.
Step 3: Duties Test
The position must meet the parameters of an allowed exemption category.
A. Executive Exemption
1. Must be compensated on a salary basis of not less that $455 per week.
2. Primary duties must be managing the enterprise, department, and/or, subdivision.
3. Position must direct the work of at least two or more full-time employees or their equivalents.
4. Position must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees.
B. Administrative Exemption
1. Must be compensated on a salary basis of not less that $455 per week.
2. Primary duties must be the performance of office or non-manual work directly related to the management of general business operations of the employer.
3. Primary duties include exercising discretion and independent judgment with respect to matters of significance.
C. Professional Exemption
1. Must be compensated on a salary basis of not less than $455 per week.
2. Primary duties must be the performance of work requiring advanced knowledge.
3. The advanced knowledge must be in a field of science or learning.
4. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Enforcement
Wage-Hour’s enforcement of FLSA is carried out by investigators stationed across the U.S. They conduct investigations and gather data on wages, hours, and other employment conditions or practices, in order to determine compliance with the law. Where violations are found, they also may recommend changes in employment practices to bring an employer into compliance.
It is a violation to fire or in any other manner discriminate against an employee for filing a complaint or for participating in a legal proceeding under FLSA. Willful violations may be prosecuted criminally and the violator fined up to $10,000. Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each violation. The FLSA prohibits the shipment of goods in interstate commerce which were produced in violation of the minimum wage, overtime pay, child labor, or special minimum wage provisions.
Listed below, are methods which FLSA provides for recovering unpaid minimum and/or overtime wages.
- Wage-Hour may supervise payment of back wages.
- The Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages.
- An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney’s fees and court costs.
- The Secretary of Labor may obtain an injunction to restrain any person from violating FLSA, including the unlawful withholding of proper minimum wage and overtime pay.
An employee may not bring suit if he or she has been paid back wages under the supervision of Wage-Hour or if the Secretary of Labor has already filed suit to recover the wages. A 2-year statute of limitation applies to the recovery of back pay, except in the case of willful violations, in which case a 3-year statute applies.
Effect on Business
The effect on business as a result of this act is estimated to cost of total of 1.1 billion in year one. Of that, $375 million will be in recurring yearly cost in the form of transfers from employers to employees in the form of greater overtime pay and higher base salaries. The remaining $738.5 million lies in the cost of reviewing and reforming overtime policies. While this seems like a costly price to pay for a few employee’s, the DOL estimates that by updating and clarifying this information they are likely to save employer’s at least $252.2 million per year.
Conclusion
The Fair Labor Standards Act was enacted to protect unskilled, low-pay workers. But today, the rigid provisions of the FLSA hurt American workers more than they help. The FLSA’s outdated provisions also deny many workers the ability to participate in bonuses and gain sharing programs that would increase their take-home pay.
Updating the FLSA will make it possible for employers to create a more family-friendly workplace for American workers and make performance bonus programs more widely available. This will help to increase employee effectiveness and job satisfaction while decreasing turnover rates and absenteeism. New federal mandates are not necessary for this to be achieved: Congress can accomplish the intended reform to FLSA simply by freeing employers and workers from the inflexible requirements of a law that was written 63 years ago.
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3. Frequently Asked Question About the FLSA, , 7/1/04, pages 1-6.
4. Modernizing the FLSA for the 21st Century, by D. Mark Wilson, The Heritage Foundation Backgrounder, July 12, 2001, pages 1-12
5. New Overtime Regs Still Speeding Toward Deadline, by M. Lee Smith, , 5/11/04, pages 1-3
6. DOL: Be prepared to comply with new white-collar rules, by Margaret Clark, Society for Human Resource Management, 5/5/04, pages 1-2
7. Senate approves amendment to block overtime rules change, by Bill Leonard, Society for Human Resource Management, , 5/11/01, pg. 1
8. U.S Department of Labor WHD: FairPay Fact Sheet by Exemption, , 5/27/04
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10. Senate passes important tax bill with overtime amendments attached by Bill Leonard, Society for Human Resources Management, , 5/19/04.
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12. What does the Fair Labor Standards Act not Require?, by elaws, , 6/11/04
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