The new (e.g. almost three years) Fair Labor Standards Act (“FLSA”) regulations on exempt status differ in some significant aspects from the old, but still leave employers with numerous, problematic decisions as to which employees are/are not overtime eligible. If the employer guesses wrong, the possibility for a single plaintiff lawsuit or, more disturbingly, a class action is created, with considerable exposure. There are, however, ameliorative steps that can and should be taken.

The FLSA expressly exempts three major categories of employee from overtime requirements: executive employees, administrative employees and professional employees. Whether an employee is exempt depends on: 1) his duties and responsibilities; and, 2) payment of a statutorily prescribed salary. The salary component of the test is fairly easily met. The new regulations set the salary threshold below at $455 per week ($23,660/year), significantly up from the antediluvian $250/week.

The final executive duties test requires employees to be involved in supervising two or more employees and have authority to hire or fire or where the suggestions of such employees in such areas as hiring, firing, advancement, promotion or other change in status are given particular weight. The previous requirement that an employee “customarily and regularly exercises discretionary powers” is now gone. The regulations give specific guidance as to how to determine whether an employee’s suggestions are in fact given “particular weight.”

The final administrative duties test retains the requirement that an employee have a “primary duty” of “performing office or non-manual work related to the management or general business operations of the employer or the employer’s customers,” and, regretfully, retains the “discretion and independent judgment” language of the prior regulation. The DOL proposal was to replace the “discretion and independent judgment” requirement with a requirement that the employee hold “a position of responsibility” with the employer or perform work requiring a high level of skill or training. That would have made the job of classifying employees as “administrative” far easier, but now, employers must still make fine-line determinations of whether employees are using skill and experience, as opposed to discretion and independent judgment. Thus, the revision removes few of the gray areas that have surrounded this exemption for many years.

The proposed professional duties test would have recognized exempt “learned professionals” as certain employees who gain sophisticated, professional-type knowledge and skills not only through formal education, but through alternative means such as a combination of job experience and education. This proposal did not survive, although there remains a small window to fit an employee within this exemption under a “combination” theory. The biggest field of battle on this issue will be in the computer field, where job titles number in the thousands and many employees acquire high level, important positions without always having a degree in “computer science.”

In my experience, I have often seen the firing of a single employee (for the right reasons!) lead to a complaint to the state/federal Department of Labor, triggering an audit that could lead to significant exposure if employees have been incorrectly classified. The best way to avoid such a contingency is to be proactive and ascertain for yourself and your organization the accuracy of your current classification of employees through an “internal audit.” In such an audit, the duties of various employees are matched up against the new regulations (and case law) with conclusions drawn. If the employee is deemed non-exempt, the next thorny decision is whether to pay he/them the back pay theoretically owed. The most important lesson learned from such an audit, however, is what to do going forward to be in compliance—and then breathe a little easier about this sticky, oftentimes gray area of law!