The Fair Labor Standards Act (FLSA)


The FLSA was established in 1938. The first major overhaul of the FLSA in more
than 50 years became effective Monday, August 23, 2004.

The revised regulations have greatest clarity for persons with yearly income
under $23,660, or for persons with an annual income greater than $100,000 a year.

In summary, the Fair Labor Standards Act establishes that workers in certain
categories can, under certain instances, earn extra pay for workweeks that
exceed 40 hours.

The law retains the three primary tests for determining who is eligible
("non-exempt") and who is not ("exempt") from overtime pay - with
compensation and job duties/essential functions having the greatest importance.


Test 1: Salary-Basis Test

To be exempt from overtime, workers must be paid a set salary, not an hourly wage.
This has long been the rule under federal overtime law. The new rules don't change this requirement.

Test 2: Salary Level Test

This test has been amended. In order to be exempt from overtime, the new rules require
that employees earn a minimum salary of $455 a week, or $23,660 a year [$11.375 per
hour]. That's triple the prior minimum salary of $155 a week, or $8,060 a year [$3.875 per hour].

White-collar employees who earn more than $100,000 a year are automatically exempt
from overtime pay under the new law. This standard did not exist before; however, many
high-income workers have been exempt for other reasons (see "Test 3" below) besides
their income level.

Test 3: Duties Test

Three categories remain - a worker whose job is identified as "administrative,"
"professional," or "executive" in nature does not qualify for overtime. However, the new
rules attempt to clarify the type of work that qualifies as administrative, professional and executive.

EXECUTIVE: For example, a fast food manager must be involved in "key" staffing
decisions of particular weight like hiring, firing and promoting in order to be deemed
ineligible for overtime - and the position must regularly direct the work of two or more employees. Previously, that manager had to have the actual power to hire and fire
employees in order to be considered exempt, and must not devote more than 20%
(or 40% in retail or service industries) of time to functions that are not directly related
to exempt work.

ADMINISTRATIVE: A position can't get overtime if the job is "primarily intellectual" and requires "discretion and judgment" and is "of substantial importance" to the employer or employer's customers, and work requires "high level skills or training."

PROFESSIONAL: Typically office or non-manual work requiring knowledge of an advanced
type in a field of science or learning customarily acquired by a prolonged course of
specialized intellectual instruction - but which also may be acquired by alternative means
such as an equivalent combination of intellectual instruction and work experience. These include "learned" professionals such as lawyers, doctors, registered nurses and engineers. However, technicians, beauticians, licensed practical nurses, and other "skilled trades-
people" remain non-exempt because the character and scope of work is typically repetitive
and limited to specific perimeters that do not generally provide discretion and judgment.

Additional Exemptions:

Creative Professionals - Duties/essential functions performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employees - In summary, duties/essential functions that include: (A) systems analysis and consulting to determine hardware and/or software functional applications;
(B) design, development and testing of or related to system design specifications, and (C) design, documentation, testing, creation, modification of computer programs related to machine operating systems; or a combination of duties/essential functions described in
(A), (B) and (C) with the equivalent same level of skills.

Failure to Comply with the FLSA

In 2001, a California jury ordered Farmers Insurance Exchange to pay $90 million for failing
to pay time and half to its insurance adjusters. Many employers - small and large, local
and national - have been found guilty of violating FLSA. In 2003, regulators collected a
record $212.5 million in back wages from employers who violated wage-and-hour laws --
a 20 percent increase from 2002 - plus employers face fines, penalties and the scrutiny of probation. Recent court FLSA related court cases include Wal-Mart, Blockbuster, Home
Depot and Starbucks.


Labor Secretary Elaine Chao projects that 1.3 million employees will now be eligible for overtime, and that the new rules strengthen protections for 5.4 million others.

The Labor Department projects that companies will save $252.2 million a year on the assumption that they will commit fewer violations of wage-and-hour laws.

Some 18 states, including California and Illinois, have separate overtime laws that already surpass the federal law. For example, in California, state law makes it far easier for
workers to qualify for time and a half - which continues to be a hotbed of overtime
litigation - and the Federal law, old or new, doesn't eliminate this on-going dispute.

New rules rely more on actual duties and less on job titles.



In July 2004, the Economic Policy Institute announced that 6 million workers will lose
their right to overtime under the new rules.

The Labor Department estimates that businesses will pay $739 million to comply with
the law and an additional $375 million in annual payroll fees.


For a FLSA Knowledge Teaser, click here.