New Regulations Covering Exempt Staff

As of April 20, 2004, the Department of Labor has released the revised regulations covering exempt staff members. These changes will go into effect 120 days from now (most likely September 1, 2004). The dollar amount of salary required has gone to $455 per week. The changes for the various levels are listed below; i.e., executive, administrative, etc. There is also an additional Safe Harbor provision in the regulations concerning deductions made from exempt staff pay, that includes that a specific policy be created and published. The changes are significant and every company should review its classification system and positions.

Fact Sheet #17A:
Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)

This fact sheet provides general information on the exemption from minimum wage and overtime pay provided by Section 13(a)(1) of the Fair Labor Standards Act as defined by Regulations, 29 CFR Part 541.

The FLSA requires that most employees in the United States be paid at least the Federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional, and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt 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 than $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 requirements of the Department’s regulations.

See other fact sheets in this series for more detailed information on the specific exemptions for executive, administrative, professional, computer, and outside sales employees, and for more information on the salary basis requirement.

Executive Exemption
To qualify for the executive employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;
  
• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
  
• The employee 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 must be given particular weight.

Administrative Exemption
To qualify for the administrative employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  
• The employee’s primary duty must be the 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
  
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemption
To qualify for the learned professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  
• The employee’s 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.

To qualify for the creative professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salaryor fee basis (as defined in the regulations) at a rate not less than $455 per week;
  
• The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employee Exemption
To qualify for the computer employee exemption, the following tests must be met:

• The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
  
• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
  
• The employee’s primary duty must consist of:

1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
   
2. 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;
   
3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
   
4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

Outside Sales Exemption
To qualify for the outside sales employee exemption, all of the following tests must be met:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
  
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

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