Although the FLSA generally sets minimum wage, overtime pay, equal pay, record keeping, and child labor standards, we are going to concentrate most of our efforts discussing overtime pay since that appears to be the major conflict between staffing firms and clients.

Overtime pay is a required premium pay for all hours worked in excess of forty (40) in a workweek. As a general rule, all employees covered under the FLSA must be paid a rate of time and one half of their regular rate of pay for all hours worked in excess of forty (40) in a workweek. It is important to understand that an employee’s regular rate of pay is a special term utilized by the FLSA, and does not necessarily equal the employee’s hourly rate. The regular rate is calculated by totaling the employee’s includable compensation before the overtime premium and dividing it by the total hours worked in the workweek. Although not inclusive, items such as base hourly rates, piece rates, commissions, incentive bonuses, shift work differentials, and cash prizes should all be included in the computation of an employee’s regular rate of pay.

A. Exemptions
Particular employees may be exempt from the general requirement stated above if they meet certain criteria. As applied to contract staffing, the most common exemptions apply to those white collar employees who are employed in a bona fide executive, administrative, or professional position. The difference between these exempt employees and other nonexempt employees is often misunderstood, but critically important.

The DOL has defined professional, administrative and executive employees in Part 541 of the Code of Federal Regulations. These definitions are as follows:

"§541.1 Executive.
The term employee employed in a bona fide executive * * * capacity ...shall mean any employee:

1. Whose primary duty consists of the management of the enterprise in which he is employed or of a customarily recognized department of subdivision thereof; and
2. Who customarily and regularly directs the work of two or more other employees therein; and
3. Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight; and
4. Who customarily and regularly exercises discretionary powers; and
5. Who does not devote more than 20 percent, ... of his hours of work in the workweek to activities which are not directly and closely related to the performance of the work described in paragraphs (a) through (d) of this section: ...; [and]
6. Who is compensated for his services on a salary basis ..."

"§541.2 Administrative.
The term employee employed in a bona fide * * * administrative * * * capacity ...shall mean any employee:

(a) Whose primary duty consists of either:

1. The performance of office or nonmanual work directly related to management policies or general business operations of his employer or his employer’s customers, or
2. The performance of functions in the administration of a school system, or educational establishment or institution, or of a department or subdivision thereof, in work directly related to the academic instruction or training carried on therein; and

(b) Who customarily and regularly exercises discretion and independent judgment; and

(c)

1. Who regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity..., or

2. Who performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, or

3. Who executes under only general supervision special assignments and tasks; and

(d) Who does not devote more than 20 percent... of his hours worked in the workweek to activities which are not directly and closely related to the performance of the work described in paragraphs (a) through (c) of this section; [and]

(e)(1) Who is compensated for his services on a salary or fee basis..."

"§541.3 Professional.
The term employee employed in a bona fide professional * * * capacity ...shall mean any employee:

1. Whose primary duty consists of the performance of:

1. Work requiring knowledge of an advance type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished form a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes, or
2. Work that is original and creative in character in a recognized field of artistic endeavor..., and the result of which depends primarily on the invention, imagination, or talent of the employee, or
3. Teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge and who is employed and engaged in this activity as a teacher in the school system or educational establishment or institution by which he is employed, or
4. Work that requires theoretical and practical application of highly-specialized knowledge in computer systems analysis, programming, and software engineering, and who is employed and engaged in these activities...;and

2. Whose work requires the consistent exercise of discretion and judgment in its performance; and
3. Whose work is predominantly intellectual and varied in character ... and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time; and
4. Who does not devote more than 20 percent of his hours worked in the workweek to activities which are not an essential part of and necessarily incident to the work described in paragraphs (a) through (c) of this section; [and]
5. Who is compensated for services on a salary or fee basis..."

Many clients assume that because an individual is working in what they consider to be an administrative, executive, or professional position, that employee is exempt from the overtime requirement of the FLSA. However, the test for exempt status is a two-pronged test. Not only must the employee’s duties meet the exempt requirements, as you can see from the definitions, that employee must also be paid on a salary or fee basis.

Both the salary and the duties test must be met for the exemption to apply. An employee is not considered exempt if only one of the two tests is satisfied. Therefore, although an employee has a title or duties which appear to fit the definitions, that employee must also be paid on a salary or fee basis to qualify as exempt under the FLSA. Similarly, the payment of a salary does not, in and of itself, create an exemption. The individual who is paid a salary must still meet the duties test to qualify for exemption.

An employee who is classified as exempt, must maintain such exemption every workweek to continue the exemption. Generally, an exempt employee must receive his/her entire salary for any week in which work is performed without regard to the number of days or hours worked. Although certain permissible deductions may be made, these deductions may only be made in full day increments or the exemption may be forfeited. This is another crucial element of wage and hour law which is often misinterpreted and worth re-stating. The salary test will only be satisfied if an employer continues to pay the exempt employee his/her entire salary each week with only specific exceptions outlined in the FLSA.

1. Computer Related Occupations
There is one very important exception to these general principles which is relevant in the contract staffing context. This exception applies to all individuals who work in a computer related occupation. Professionals working in a computer related occupation who earn more than $27.63 per hour can still be paid on an hourly basis and maintain the exemption from the FLSA. In other words, computer related professionals meeting a certain economic threshold are not required to meet the salary basis test.

Originally, the FLSA required a computer related employee to be paid at a rate of six and one half times the minimum wage in order to qualify for exemption. However, in 1996 the FLSA was amended by the Small Business Job Protection Act. This modification eliminated the old six and one half times the minimum wage calculation and replaced it with the specific dollar amount of $27.63.

The definition of computer related occupations is somewhat narrow, and does not include employees engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment. The exemption applies only to computer systems analysts, computer programmers, software engineers, or other similarly skilled workers in the computer software field.

This exemption is extremely important for contract staffing firms. A majority of employees placed by recruiters with Top Echelon meet the definition someone employed in a computer related occupation. This allows Top Echelon to pay these employees on an hourly basis, without paying a premium rate for hours worked in excess of forty in a workweek. Thus, clients who receive these services are not asked to pay a different bill rate for different hours of work. Clients are only billed one rate for both straight and overtime hours.

2. Attorneys, Teachers, Physicians and Outside Salespersons
There are a variety of additional exceptions. Some that relate to potential contract staffing opportunities are Attorneys, Teachers, Physicians and Outside Salespersons.

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