FLSA exemption modifications affect all employers

Every business must comply with the significant changes to the Fair Labor Standards Act that will be effective Aug. 23.

These historical modifications to the 1938 act will decrease payroll expenses for some positions and increase expenditures for others.

The number of deductions for exempt associates will be increased.

Under the Act, organizations may deduct for military, witness and jury leave, regardless of the amount of work performed by the team member during that work week. Enterprises do not have to pay full salary for the complete initial hire or termination week if the employee does not work the entire week. Staff may be suspended in unpaid, full-day increments for workplace conduct rule infractions.

A “Safe Harbor” will be allowed, in which an exempt status will not be lost for an isolated, inadvertent, improper deduction that is rectified.

All exempt categories will require the individual to be paid at least $455 per week on a salary basis. The exempt computer category contains one exception that allows for the payment of $27.63 per hour.

The four original exempt categories – exempt executive, exempt professional, exempt sales and exempt computer – will be changed to 11 categories and subcategories. The prior short and long tests will be replaced by standard duties tests. All questions must all be answered “yes” for the worker to fall under that exempt category.

• Exempt executive. Does his primary duty consist of managing an enterprise, department or subdivision? Does he regularly supervise at least two full-time or full-time-equivalent employees? Does he have the authority to hire and terminate others or make recommendations given weight by the final decision maker? If he owns 20 percent equity interest in the business in which he is employed, and if he is engaged in managing, he will be considered an exempt executive.

• Exempt highly compensated/exempt executive. This will be added as a subcategory of exempt executive. Does he make at least $100,000 per year? Does he perform office or non-manual work? Does he regularly perform one or more of the duties of an exempt executive, exempt professional or exempt administrative position identified in the standard test questions for exemption in those categories?

The previous exempt professional category will be divided into exempt learned professional, exempt artistic professional and exempt highly compensated.

• Exempt learned professional. Does his primary duty require advanced knowledge, defined as work predominantly intellectual in character, including duties requiring the consistent exercise of discretion and independent judgment? Is the advanced knowledge in the field of science or learning? Is the advanced knowledge acquired by a prolonged course of specialized intellectual instruction?

• Exempt artistic professional. Does his primary duty involve work requiring invention, imagination or talent in a recognized field of artistic or creative endeavor?

• Exempt highly compensated/exempt learned professional or exempt highly compensated/exempt artistic professional.

• Exempt outside salesperson. Does he regularly work away from the organization? Does he make sales or obtain orders/contracts for which a consideration will be paid by the customer?

• Exempt administrative. Does he regularly exercise discretion and independent judgment with respect to matters of significance? Is his primary duty to perform office and non-manual work related to management policies or general business operations?

• Exempt field of education/exempt administrative. This will be a new subcategory. Is he a superintendent, an assistant responsible for administration, or the head of an elementary or secondary school system? Is he a principal, vice principal, academic counselor or department head in an institution of higher education?

• Exempt highly compensated/exempt administrative. This will be a new subcategory with the same standard duties test as an exempt executive.

• Exempt computer. Is he a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field? Unlike the former exempt categories in which all questions must be answered “yes,” under the exempt computer category, only one of the following must be true. Are his primary duties applications of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications? Are his primary duties to design, develop, document, analyze, create, test, or modify computer systems or programs, including prototypes? Are his primary duties to design, document, test, create or modify computer programs related to machine operating systems? Are his primary duties a combination of the above, the performance of which requires the same skill level? Salaried staff in the computer field qualifying under any other exempt category remain exempt.

Company managers and officials will have personal liability under federal law, including a personal fine of up to $100,000 for a willful violation and a prison term of up to six months for a second willful violation. The enterprise will be liable for back wages, such as unpaid overtime and minimum wage, the amount of which will double if the violation is willful. Employment, reinstatement or promotion of the associate will be mandated. Attorney fees and court costs will have to be paid. Under Missouri law, a civil damage lawsuit will be allowed against managers and officials and/or a fine of up to $1,000 per day for each violation.

By performing specific action now, managers and corporations can protect themselves.

First, execute an immediate audit to determine which positions will be exempt and nonexempt as of Aug. 23. Second, prepare or update job descriptions to be able to prove the determination of the exempt or nonexempt status. Third, examine each rule included in the state law compared to the FLSA. Comply with the specific federal or state rule that most benefits the employee in each instance. Fourth, update the employee handbook to reflect any changes. Fifth, conduct management and payroll clerk training, since these individuals will make or break company compliance.