U.S. Department of Labor’s
Fair Labor Standards Act
(FLSA)
Indiana University Board of Trustees
September 9, 2004
Fair Labor Standards Act
Signed into law in 1938 by President Roosevelt …
Basic framework for the treatment of employees:
Minimum wage
Equal pay
Child labor standards
Recordkeeping
Overtime pay
Principles of employee protections that continue today
Fair Labor Standards Act
Most misunderstood provision governs overtime pay
Requires that most employees be paid “overtime” for
hours worked in excess of 40 hours in a work week …
Overtime = excess of 40 hours in a work week
Overtime = one and one-half times “regular rate of pay”
Regular rate of pay = includes all remuneration
Certain employees may be exempted from overtime pay
Fair Labor Standards Act
Noncompliance can be costly
During FY 2003, the DOL concluded FLSA
investigations on over 32,500 cases,
covering over 314,000 employees
Back wages collected totaled approximately $182 million
27% increase over the $141 million collected in FY 2002
Fair Labor Standards Act
Noncompliance can be costly
Two to three years’ back pay (doubled for willful violations)
Civil penalties = $1,100 per paycheck issued
Criminal penalties = $11,000 per violation
Attorney’s fees
Individual liability for managers responsible for pay
classifications and practices
DOL investigation is expensive, invasive, and disruptive
Fair Labor Standards Act
Noncompliance can be costly
Example: 30 employees improperly classified as exempt; average unpaid
overtime per employee per year = $4,000; willful FLSA violation
Penalties and Costs
Amount
$4,000 x 30 employees x 3 years =
$360,000 x 2 (liquidated damages)
$ 720,000
$1,100 x 72 pay periods x 30 employees
$2,376,000
Attorneys’ fees, admin. costs, plus defense cost
$ 200,000
30 x $11,000 per violation
$ 330,000
Total cost of noncompliance
$3,626,000
Fair Labor Standards Act
Noncompliance can be costly
UPS: $18 million for employees classified as exempt
Pacific Bell: $35 million for engineers
Farmers Insurance Exchanges: $90 for claims adjusters
University of New Mexico: $2 million for student admin.
RehabCare Group: $3 million for nurses, therapists, etc.
University of Phoenix: $3 million for admission counselors
City of Houston: $96 million for paramedics
Fair Labor Standards Act
New FLSA regulations were issued by the DOL on April 23, 2004,
to become effective on August 23, 2004
Prior regulations considered outdated and confusing
Many decades of case law and interpretive guidelines
Record-breaking enforcement fines and class actions
FLSA lawsuits outnumbered employment discrimination cases
New rules are to modernize the “white collar” exemptions
Fair Labor Standards Act
FLSA overtime exemption, effective August 23, 2004
Based on a position-by-position review
All three of the following tests must be satisfied:
1. Salary Basis test --- must be paid a predetermined amount
2. Salary Level test --- must be paid a minimum weekly amount
3. Duties test --- must perform work on an exempt nature
Emphasis is on the evaluation of actual duties &
responsibilities --- the position’s primary duty(s)
Fair Labor Standards Act
FLSA overtime exemption --- Salary Basis test
Employee must be paid a predetermined, fixed
salary that is not subject to reductions due to
quality or quantity of work performed
New regulations allow for reduction of one or more full
days for violations of written workplace conduct rules
Fair Labor Standards Act
FLSA overtime exemption --- Salary Level test
Employee must be paid at least $455 per week
Clear obligation to pay overtime to all employees who earn
less than $455 per week … annual equivalent of $23,660
Salary level is not prorated for part-time employees
The Salary level test does not apply to bona fide lawyers,
doctors, or teachers
Fair Labor Standards Act
FLSA overtime exemption --- Duties test
Primary duty(s) must be consistent with one or more of the
following FLSA exempt types of work:
Executive duties
Administrative duties
Academic Administrative duties
Learned Professional duties
Creative Professional duties
Teachers at an educational institution
Certain Computer duties
Outside Sales duties
Fair Labor Standards Act
FLSA overtime exemption --- Duties test
Executive exemption
Primary duty of managing the enterprise or a recognized
department or subdivision AND
Direct the work of two or more full-time employees AND
Have authority to hire/fire or make recommendations of
significant weight to hire, fire, promote, etc.
Fair Labor Standards Act
FLSA overtime exemption --- Duties test
Administrative exemption
Primary duty directly related to the management or
general business operations of the employer AND
Duties requires the employee to exercise discretion and
independent judgment with respect to matters of
significance
Fair Labor Standards Act
FLSA overtime exemption --- Duties test
Learned Professional exemption
Primary duty must require advance knowledge in a field
of science or learning AND
Must be customarily acquired by a prolonged course of
specialized intellectual instruction
Restricted to professions in which specialized academic
training is a standard prerequisite
Fair Labor Standards Act
FLSA overtime exemption --- Salary Level/Duties test
Streamlined duties test for employees with total
annual compensation of $100,000 or more
Who customarily and regularly perform at least one
of the exempt duties of an executive, administrative or
professional employee
Does not apply to computer, craftsmen, construction,
etc. employees
Fair Labor Standards Act
Indiana University considerations
New FLSA regulations will reduce the number of positions
that qualify for exemption status --- additional positions
will be eligible for overtime
Salary Level test includes a significantly higher minimum
weekly salary
Duties test has narrower definitions of exempt work
New regulations identify specific types of work that must
receive overtime
Fair Labor Standards Act
Action Plan for Staff positions across Indiana University
Review most likely “at risk” positions during fall 2004; affected
positions would be changed to nonexempt in early February 2005,
with any retroactive overtime pay back to August 2004.
Potentially affected positions to maintain work records
Managers of potentially affected positions to complete short summary
of the positions’ primary duties
HR offices to evaluate primary duties for FLSA exemption status
Conversion considerations, such as: new category of Staff positions,
benefit plan eligibility, and conversion from monthly salaries to hourly
rates of pay
Fair Labor Standards Act
Action Plan for Staff positions
Review most likely “at risk” positions during the fall; affected positions
would be changed to nonexempt in early February 2005, with any
retroactive overtime pay back to August 2004.
Approx. number of Staff positions to be reviewed for FLSA exemption
 Bloomington
800
 Indianapolis
590
 South Bend
53
 Richmond
45
 Gary
40
 New Albany
30
 Kokomo
28
 Ft. Wayne
1
Total = 1,587
Fair Labor Standards Act
Noncompliance can be costly for Indiana University
(DOL investigation is expensive, invasive, and disruptive)
May 2000, DOL issued letter to Indiana University
very narrow audit, which disclosed that admission counselors,
writers, reporters at Bloomington were not in compliance with FLSA
--- positions were misclassified as FLSA exempt status
Retro overtime payments were processed for 133 employees
“If at any time in the future your firm [IU] is found to have violated
the monetary provisions of the FLSA, it will be subject to such
penalties [civil money penalty for any repeated or willful violations]”
Fair Labor Standards Act
Action Plan for Staff positions across IU – Objectives
Comply with the law
Ensure consistency across all Indiana University units
Preserve benefit plan coverages for affected employees
Preserve total compensation for affected employees, for
same work effort
Ensure transparency for all decisions
Managers are responsible for providing accurate and clear
description of the primary duty(s) assigned to positions
U.S. Department of Labor’s
Fair Labor Standards Act
(FLSA)
Indiana University Board of Trustees
September 9, 2004