U.S. Department of Labor Expands White Collar Exemptions

Published on: 4/30/2004

April 30, 2004 

On April 20, 2004, the U.S. Department of Labor issued amendments to the Fair Labor Standards Act, referred to as the “FairPay” regulations that will increase the number of positions exempt from the overtime provisions of the Act. The amendments will be effective 120 days after they are published in the Federal Register. During this four month period, all employers should be conducting an audit of their positions to determine whether they are exempt from the overtime provisions of the Act.

The major changes are to the classes of positions that are commonly referred to as “White Collar” positions: these are positions that are deemed to be executive, administrative, professional, or outside sales. Certain computer professionals may be exempt as a subcategory of professional employee. The amendments change the three tests that apply to these exemptions.

The salary test which is found in 29 C.F.R. § 541.600 et. seq. has created a new classification called the “Highly Compensated Employee” test. Under this test an employee who earns at least $100,000 per year (pro rated if the employee works a part of the year), performs non manual or office work, and “customarily and regularly” performs one or more of the exempt duties of an executive, administrative, or professional employee will be exempt. Note that the employee must receive in compensation no lower than $455.00 in any week. Commissions and non discretionary bonuses are counted in computing the $100,000 threshold.

The Salary Basis Test (29 C.F.R. § 541.602 et. seq.) has been amended to allow an employer to make more deductions from the salary of an exempt employee without defeating the exemption. The general principle governing exempt positions is that the salary is a fixed payment for work performed during the workweek and it may not be reduced for absences from work during that workweek except for those deductions allowed by law. There are seven deductions from the “No Pay Docking” rule that will now permitted:

  • Absence for one day or more for personal reasons
  • Absence for one day or more for sickness or disability if the deductions are made pursuant to a bona fide plan, policy or practice
  • Offsets for payments for jury fees, witness fees, or military pay
  • Penalties imposed in good faith for violating safety rules of major significance
  • Disciplinary suspensions imposed in good faith of one or more full days for violations of workplace conduct rules
  • Proportionate amount of salary deducted for days worked during the employee’s fist and last weeks of employment
  • Unpaid Family and Medical Leave


The new Salary Basis Test allows an employee’s earnings to be calculated on an hourly, daily, or fee basis provided that the employee is guaranteed, no matter how many hours actually worked, at least $455 per week and if there is a reasonable relationship between the guaranteed amount and the amount actually earned in that workweek. See 29 C.F.R. § 541.64 et. seq. The Salary Basis Test may also be met if administrative and/or executive employees are paid on a fee basis. See 29 C.F.R. § 541.605

The Exempt Duties Tests have been modified so that they will be easier to apply.


    Executive Employee 29 C.F.R § 541.100 et.seq.

  • Primary duty the management of the enterprise or a customarily recognized department or subdivision;
  • Customarily and regularly directs the work of two or more employees; and
  • Has authority to hire or fire other employees (or whose suggestions and recommendations on the hiring, firing, advancement, promotion, or other change in employment status is given particular weight).


    Administrative Employee 29 C.F.R § 541.200 et.seq.

  • Primary duty is the performance of office or non manual work directly related to the management or the general business operations of the employer or the employer’s customers; and
  • Exercises “discretion and independent judgment” with respect to matters of significance.


    Learned and Creative Profession 29 C.F. § 541.300 et.seq.

  • Primary duties is work requiring advanced knowledge;
  • In a field of science or learning;
  • Customarily acquired by a prolonged course of specialized intellectual instruction; and
  • Creative Professional has the primary duty of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

   Computer Professionals 29 C.F.R. § 541.400 et.seq.

  • Primary duty is

                 - the application of systems analysis techniques and procedures,

                   including consulting

                 - design, development, documentation, analysis, creation, testing, or

                   modification of computer systems or programs

                  - a combination of both

  • May be paid on an hourly basis provided the hourly rate is at least$27.63 per hour.


The new regulations will greatly impact greatly on most workplaces. They should be implemented with care. The first step in making a change to a position classification under the Act would be to develop an accurate job description and then to assess the duties of that position against the new tests. In doing this it is important to remember that no two positions are like and that job titles do not control. Accordingly, a work unit could have two administrative assistant positions, one could be exempt and the other not.

 




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