BUSINESS WATCH

New Wage and Hour Regulations Provide Employers a Safe Harbor to Avoid Loss of “White Collar” Exempt Status By Carla Heathershaw Risko

 

In August 2004, the Department of Labor adopted new regulations governing the Fair Labor Standards Act §13(a)(1) exemptions. Under these so called “white collar” exemptions, employers may be relieved of the obligation to pay minimum wage and – perhaps more importantly – an overtime premium to employees who qualify as executive, administrative, professional or computer employees. However, if the employer does not abide by certain requirements, the exemption may be lost. One of these requirements is that the employee must be paid on a salary basis and that no improper deductions be made from the employee’s salary. Pursuant to the previous regulations, if an employer did take an improper deduction against a single employee, the employer jeopardized the exempt status of not only that employee, but also all other exempt employees. Now, the new regulations contain a “safe harbor” and “window of correction” provision that allows an employer to avoid the loss of exempt status.

 

In order to understand the “safe harbor” and “window of correction”, employers must first recognize when a deduction is improper. Generally, an employer may not take any deductions or reductions from an exempt employee’s salary. There are, however, certain situations in which a deduction is allowed. These situations include:

 

·          Deductions for absences taken in full day increments for personal reasons other than sickness or disability;

·          Deductions for absences due to sickness or disability if wage replacement benefits (e.g. short term disability or workers’ compensation) are paid;

·          Deductions for violations of major safety rules;

·          Deductions related to disciplinary suspension imposed in full day increments;

·          Deductions to offset amounts received by the employee for jury duty, witness fees or military pay;

·          Reductions in salary for less than full-time work during the first and last weeks of employment; or

·          Reductions in salary for unpaid leave under the Family and Medical Leave Act.

 

All other deductions from an exempt employee’s salary are improper and may result in loss of the employee’s exempt status – meaning the employee is then entitled to both minimum wage and overtime premium. Under the new provision, the exemption is lost only if the employer has an “actual practice” of making improper deductions and even then, the loss of the exemption will affect only those employees in the same job classifications and under the same manager during the same pay period.

 

An “actual practice” of making improper deductions may be evidenced by the frequency of the improper deductions, the number and geographic location of employees affected by the improper deduction or the managers who made the improper deductions, and whether the employer has a clearly communicated policy prohibiting deductions.

 

In most cases, improper deductions are not the result of an actual practice, but are simply inadvertent errors. When such an inadvertent error occurs, an employer may avoid losing the exemption by promptly correcting the error under the window of correction provision. To qualify for the “window of correction,” the employer must have a clearly communicated policy prohibiting deductions, must have a complaint mechanism in place, must reimburse the employee (or employees) affected by the improper deduction or deductions and must commit to comply in the future. If the employer meets all four of these requirements, the employee’s exempt status will survive.

 

CONTINUED

 

To all current Business Watch Listings

Please read our Disclaimer first.

The Web Site of Fitzgerald, Schorr, Barmettler & Brennan, P.C., L.L.O., the Omaha law firm with over a century of experience and solutions