Remember The State Laws When Considering Overtime Exemptions

Monday, November 1, 2004 - 01:00

In March of 2003, the Unites States Department of Labor ("DOL") proposed various changes to the overtime regulations under the Fair Labor Standards Act ("FLSA"). These changes focus on the FLSA's "white collar" exemptions, and they have sparked great debate among groups representing both employers and employees. This debate continues today, even though DOL's revised regulations became effective on August 23, 2004.

Although most employers are currently focused on the changes to the FLSA, companies must not forget each state's overtime law when grappling with the white collar exemption issue. In many states, those laws mirror the FLSA. However, in other states, the state law is more onerous than the FLSA and must be followed. Accordingly, it is imperative that employers, particularly multi-state corporations, pay close attention to state wage and hour laws when considering whether an employee may be classified as "exempt" from overtime requirements.

The Federal Law - An Overview

Under the FLSA, employees are eligible for overtime pay after working at least 40 hours in one week. Certain types of employees are exempt from federal overtime requirements. These exempt employees are often referred to as "white collar" employees. They are exempt from the overtime requirements if they receive a salary of at least $455 per week, and they meet the other tests delineated below.

Administrative Employee

An employee qualifies as an administrative employee if his or her primary duties consist of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers. An administrative employee must also exercise discretion and independent judgment with respect to "matters of significance."

Executive Employees

This exemption applies if an employee's primary duties consist of management of an enterprise, or a recognized department or subdivision of that enterprise. An executive must also customarily and regularly direct the work of two or more employees, and have the authority to hire or fire employees or make recommendations as to these types of personnel decisions.

Professional Employees

The FLSA exempts two types of professional employees: the learned professional and the creative professional. The learned professional is exempt if the employee performs work requiring advanced knowledge (defined as intellectual discretion and judgment, analysis, interpretation, and making deductions) in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. The creative professional is exempt if the employee's work requires invention, imagination, originality, or talent in a recognized field of art or other creative enterprise.

Highly Compensated Employees

This exemption covers employees who are paid in excess of $100,000 per year, and who perform at least one of the duties of an exempt administrative, executive, or professional employee. The exemption does not apply to highly paid employees performing manual work - even if they make in excess of $100,000 annually.

Computer Professionals

Employees in computer-related fields qualify for an exemption if they perform any of the following duties: (1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional applications; or (2) the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or (3) design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or (4) a combination of these duties, the performance of which requires the same level of skills. A computer professional must also earn at least $455 per week or $27.63 per hour.

Outside Sales Employees

An employee qualifies for this exemption if his or her primary duty is to make sales or obtain orders or contracts for services, or for the use of facilities for which a consideration will be paid by the client or customer. Outside sales people must also customarily and regularly work away from the employer's place or places of business.

State Overtime Regulations

There are 19 states that have wage and hour laws that differ in some respect from the new FLSA regulations.

States Where the New FLSA Regulations Apply

Alabama, Arizona, Delaware, Georgia, Iowa, Louisiana, Mississippi, Nebraska, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, and Virginia do not regulate overtime pay. Thus, in these states employers need only concern themselves with the FLSA. Florida, Idaho, and Wyoming regulate overtime, but only with regard to state employees . Accordingly, private employers in Florida, Idaho, and Wyoming may again limit their analysis to the FLSA when determining who is eligible for overtime.

Arkansas, Indiana, Kansas, Michigan, Missouri, New Hampshire, North Carolina, Ohio, Rhode Island, Vermont, and Washington, D.C. regulate overtime, but simply apply the federal definitions of administrative, executive, and professional employees.1 Maine also applies the federal white collar exemptions, but requires that these employees receive an annual salary greater than $18,750 to be exempt.

States Which Do Not Follow The New FLSA Regulations

The following states apply overtime regulations that now differ from the FLSA: Alaska, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, Nevada, New Jersey, New Mexico, North Dakota, Oregon, Pennsylvania, West Virginia, Washington, and Wisconsin. In these states employees must meet both the state law and the FLSA to be considered exempt from the overtime requirement. When applying state and federal regulations, the stricter standard must be followed. Each of these states have exemptions for administrative, executive, and professional employees that are similar to the federal exemptions, but that also differ in some respect. Additionally, only a few states have exemptions for computer professionals, highly-compensated employees, or outside sales employees. Thus, in those states employees will only be considered exempt if they fit into the administrative, executive or professional categories.

For instance, California and Colorado have their own definitions of administrative, executive, and professional employees. An example is that unlike the federal rule, California requires its learned professionals to be licensed by the state to practice in one of eight identified professions. In Colorado, an executive must spend at least 50 percent of his or her work week performing duties directly related to supervision to be exempt.

Nevada's overtime regulations require that professional employees be licensed to practice in one of 45 fields or professions to be exempt. However, as Nevada does not define executive or administrative employees in its regulations, Nevada employers should apply the new FLSA standard for executive or administrative employees. In New Mexico, employers should apply the FLSA standard for administrative and professional exemptions, but must look to the state statute when applying the executive exemption.

Hawaii, North Dakota, Oregon, and West Virginia have their own rules which are similar to the old FLSA white collar exemptions. However, these state statutes may differ in the percentage time exempt employees are permitted to spend on non-exempt work. Additionally, in Hawaii any salaried employee receiving a minimum of $2,000 per month is automatically exempt from state overtime requirements.

Alaska, New Jersey, and Wisconsin have overtime regulations that mirror the old FLSA regulations, but each state has different salary requirements. New Jersey requires that it's employees receive at least $400 per week to be exempt. In Wisconsin the minimum salary is $700 a month for administrative and executive employees, and $750 a month for professional employees (including computer professionals).

Conclusion

These are only a few examples of the technicalities employers must be aware of on a state-by-state basis when deciding whether or not overtime must be paid. For employers with multi-state operations the complexity of the law increases with the number of states involved. However, given the increasing popularity of class-action lawsuits for unpaid overtime, and the severe penalties imposed for violations, companies must redouble their efforts to make sure they are in full compliance with both the federal and state laws when considering overtime issues.

1 A literal reading of the New York overtime regulations suggests that white collar employees who are exempt under the FLSA must be paid at least 1.5 times the state minimum hourly rate for overtime. As a practical matter, however, it is unlikely that any employee who meets the salary requirements to qualify for a white collar exemption would fail to meet this standard.

Michael T. Bissinger and Tamara N. Garnes practice labor and employment law at Pitney Hardin LLP, where Mr. Bissinger is a Partner and Ms. Garnes is an Associate. This article represents only the authors' opinions and does not necessarily reflect the views of Pitney Hardin or any of its clients. Questions concerning the article or Pitney Hardin's practice may be directed to Mr. Bissinger or Ms. Garnes at (973) 966-6300.

Please email the authors at mbissinger@daypitney.com or tgarnes@daypitney.com with questions about this article.