As employers prepare themselves for potentially unwelcome proposed revisions to the white collar regulations that are expected to pose operational, business and compliance challenges, we offer the following five suggestions to the Department for the purpose of assisting the agency with simplifying and streamlining the regulations consistent with the President’s directive:
- Address holistically the exempt status of Information Technology workers across the administrative, learned professional and computer professional exemptions. Many positions entailing sophisticated work and commanding a high rate of pay implicate all three of these exemptions, but at the same time result in workers arguing that they do not fit “squarely” within any one of the exemptions, with or without consideration of the “combination regulation,” 29 C.F.R. § 541.708. The regulations implementing the computer professional exemption were first adopted before the birth of the internet and before most of the jobs now implicated by the exemption even existed. These regulations desperately need to be modernized. The Department should define the duties test associated with all three of these exemptions to recognize that most information technology work, like the work of other white collar exempt employees, is exempt-level work.
- Meaningfully address the contemporaneous performance of exempt and non-exempt duties, particularly by managerial employees. Of the many cases brought challenging the classification of Store Managers and Assistant Store Managers as exempt executives in the last decade, a number of them have turned on the specific court’s view of whether an employee is performing exempt work as the “primary duty” where s/he maintains responsibility for the store and all related customer and employee issues, and also performs non-exempt work. While the primary duty test permits greater flexibility into this inquiry than the strict percentage tests of the prior pre-2004 regulations, neither test is objective or easily permits an employer to quickly demonstrate compliance. Where an exempt executive possesses the authority to make hiring/firing and other employment decisions (i.e., to effectuate or influence an employment action) and has earnings materially greater than subordinate employees, such employee should undeniably qualify for exempt status, without reference to “simultaneous duties.”.
- Consider increasing reliance on the compensation and salary basis prong of exempt status and de-emphasizing the duties tests. The DOL should expand the applicability of the “highly compensated” regulation. The Department should permit the marketplace for labor to determine compensation and willingness to work long hours provided the wage floor is not threatened. An employee making $50,000 per annum in much of the country is compensated substantially above minimum wage even if working a 70 hour workweek. The DOL should establish a salary level that if met, qualifies for an exemption, regardless of duties. This standard could be calibrated with compensation levels based on cost of living data, perhaps that used by the federal government.
- Simplify the regular rate calculation. The current regulations interpreting 29 U.S.C. § 207’s rules concerning inclusion and exclusion of pay from the “regular rate” for purposes of overtime also are outdated, make compliance burdensome, and have resulted in scores of lawsuits brought by public sector workers (who often receive numerous forms of “non-hourly” compensation) alone. Provided an employee receives hourly pay above the minimum wage, and time-and-one-half that rate for hours above 40, employers need greater clarity as to what additional payments impact the regular rate of pay.
- Eliminate the administrative/production dichotomy. One of the most antiquated aspects of the white collar exemption tests, this “dichotomy” refers to the distinction between workers who “produce” the company’s product and are ineligible for the administrative exemption, and workers who support their employer’s “general business operations” and are thus eligible. At its extreme, this dichotomy has been cited by the plaintiff’s bar to assert that substantially all of the employees of certain types of white collar businesses are non-exempt. This is a perversion of statutory goals and can result in the arbitrary exclusion highly compensated white collar workers from exemption, while permitting continued exemption of lesser paid workers who are, based on the dichotomy, more clearly “administrative,” such as Human Resources and marketing personnel.
These and other reforms would ensure more streamlined compliance with the FLSA’s requirements and reduce litigation and uncertainty for both employers and employees alike. This whole process serves no purpose if clarity is not provided for all stakeholders. Watch this space for further coverage of the DOL’s proposals.