Proposed Changes to FLSA Overtime Rules - Part II

The Duties Test

As we discussed in our last post, the most commonly used exemptions from the FLSA overtime pay requirements are for executive, administrative, and professional employees, and are often referred to as the “white collar” exemptions.  However, the FLSA does not define the terms “executive,” “administrative,” “professional,” or “outside salesman” and the regulations have generally required that each of the following three tests be satisfied for the exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”). 

Although the DOL did not propose any changes (in its June 30, 2015 FLSA amendment proposals) to the duties requirements it did seek comments as to whether the duties tests should be updated.  The following outlines the current duties test. 

Administrative Employees – In order for an administrative employee to be exempt, he or she must satisfy the “salary basis” and “salary level” tests described above and the duties test. A primary duty of the employee must include:

  • the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers and
  • the exercise of discretion and independent judgment with respect to matters of significance.

Executive Employees – In order for an executive employee to be exempt, he or she must satisfy the “salary basis” and “salary level” tests described above and the duties test. A primary duty of the employee must include:

  •  management of the enterprise in which the employee is employed or manages a customarily recognized department or subdivision thereof,
  • customary and regular direction of the work of two or more other employee, and
  • the authority to hire or fire other employees or input (suggestions and recommendations) regarding the hiring, firing, advancement, promotion, or any other change of status of other employees that is given particular weight.

Professional Employees – In order for certain professional employee to be exempt, he or she must he or she must satisfy the “salary basis” and “salary level” tests described above and the duties test. A primary duty of the employee must include:

  • the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character. Advanced knowledge must be in a field of science or learning, and such knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction, or;
  • work that is original and creative in a recognized field of artistic endeavor, or;
  • teaching in a school system or educational institution, or;
  • work as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field.

For each of the categories above, the employee must perform work that requires the consistent exercise of discretion and judgment or “requiring invention, imagination, or talent in a recognized field of artistic endeavor.”

Outside Sales Employees – In order for an outside sales employee to be exempt, he or she must satisfy the duties test.  The salary requirements do not apply. A primary duty of the employee must include:

  • making sales of tangible or intangible items such as goods, insurance, stocks, bonds, or real estate or obtaining orders or contracts for services or the use of facilities; and
  • Customary and regular work away from the employer’s place of business in performing the employee’s primary duty.

For more information on the current duties test and the FLSA exemptions for executive, administrative, professional and outside sales employees, please see the DOL’s Wage and Hour Division’s Fact Sheet (https://www.dol.gov/whd/overtime/fs17a_overview.htm).