[Congressional Record Volume 150, Number 120 (Wednesday, September 29, 2004)]
[House]
[Pages H7850-H7861]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     NOTICE OF PROPOSED RULEMAKING

                                                    U.S. Congress,


                                         Office of Compliance,

                               Washington, DC, September 29, 2004.
     Hon. J. Dennis Hastert,
     Speaker, House of Representatives,
     The Capitol, Washington, DC.
       Dear Mr. Speaker: Section 304(b)(1) of the Congressional 
     Accountability Act of 1995 (``Act''), 2 U.S.C. 1384(b)(1), 
     requires that, with regard to substantive rules under the 
     Act, that ``[t]he Board [of Directors of the Office of 
     Compliance] shall publish a general notice of proposed 
     rulemaking under section 553(b) of Title 5, United States 
     Code . . . [by transmittal] to the Speaker of the House of 
     Representatives and the President pro tempore of the Senate 
     for publication in the Congressional Record on the first day 
     on which both Houses are in session following such 
     transmittal.'' Board of Directors of the Office of Compliance 
     is transmitting herewith the enclosed Notice of Proposed 
     Rules implementing certain substantive rights and protections 
     of the Fair Labor Standards Act of 1938, for publication in 
     both the House and Senate versions of the Congressional 
     Record on the first day on which both Houses of Congress are 
     in session following this transmittal.
       Any inquiries regarding this Notice should be addressed to 
     the Executive Director, Office of Compliance, 110 2nd Street, 
     S.E., Room LA-200, Washington, DC 20540.
           Sincerely,
                                                Susan S. Robfogel,
                                  Chair of the Board of Directors.


        FROM THE BOARD OF DIRECTORS OF THE OFFICE OF COMPLIANCE

       Implementing Certain Substantive Rights and Protections of 
     the Fair Labor Standards Act of 1938, as Required by Section 
     203 of the Congressional Accountability Act of 1995 (CAA), 2 
     U.S.C. 1313.


                     notice of proposed rulemaking

       Background: The purpose of this Notice is to initiate the 
     process for replacing existing overtime pay eligibility 
     regulations with new regulations which will substantially 
     mirror the new overtime exemption regulations recently 
     promulgated by the Secretary of Labor.
       Do FLSA overtime pay requirements apply via the CAA to 
     Legislative Branch employing offices? Yes. One of the 
     regulatory statutes incorporated in part through the 
     Congressional Accountability Act of 1995 (CAA), 2 U.S.C. 1301 
     et seq., is the Fair Labor Standards Act of 1938 (FLSA), 29 
     U.S.C. 201 et seq. Section 203(a)(1) of the CAA states: 
     ``[t]he rights and protections established by subsections 
     (a)(1) and (d) of section 6, section 7, and section 12(c) of 
     the [FLSA] . . . (29 U.S.C. 206(a)(1), 207, 212(c)) shall 
     apply to covered employees.'' Section 7 of the FLSA, 29 
     U.S.C. 207, includes the requirements regarding the payment 
     of time and one half overtime pay to employees.
       Are there existing overtime exemption regulations already 
     in force under the CAA? Yes. In 1996, the Board of Directors 
     of the Office of Compliance promulgated the existing CAA 
     overtime exemption regulations based on the ``old'' 29 CFR 
     Part 541 regulations which were in force until August 23, 
     2004. These regulations were adopted pursuant to the CAA 
     section 304 procedure outlined herein below. Those 
     regulations are found at Parts H541 (applicable to the House 
     of Representatives), S541 (applicable to the Senate), and 
     C541 (applicable to the other employing offices covered by 
     section 203 of the CAA) of the FLSA Regulations of the Office 
     of Compliance. These regulations remain in force until 
     replaced by new regulations. Office of Compliance regulations 
     can be accessed via our web site: www.compliance.gov.
 Why is this Notice being issued? This Notice of Proposed 
     Rulemaking is occasioned by the recent promulgation of new 
     overtime exemption regulations by the Secretary of Labor at 
     Vol. 69 of the Federal Register, No. 79, at pp. 22122 et 
     seq., on August 23, 2004. The new regulations of the 
     Secretary of Labor are set out at 29 U.S.C. Part 541, and 
     replace the regulations which had been in effect prior to 
     August 23, 2004. The Secretary of Labor's regulations do not 
     apply to employing offices and employees covered by the CAA.
       Why are there separate sets of existing FLSA regulations 
     for the House of Representatives, the Senate, and the other 
     employing offices covered by the CAA? Section 304(a)(2)(B) of 
     the CAA, 2 U.S.C. 1384(a)(2)(B),

[[Page H7851]]

     requires that the substantive rules of the Board of Directors 
     of the Office of Compliance ``shall consist of 3 separate 
     bodies of regulations, which shall apply, respectively, to--
     (i) the Senate and employees of the Senate; (ii) the House of 
     Representatives and employees of the House of 
     Representatives; and (iii) the other covered employees and 
     employing offices.'' In 1996, the House of Representatives 
     (H. Res. 400) and the Senate (S. Res. 242) each adopted by 
     resolution the FLSA regulations applicable to each body. The 
     Senate and House of Representatives adopted by concurrent 
     resolution (S. Con. Res. 51) the regulations applicable to 
     other employing offices and employees.
       Are there substantive differences in the proposed 
     regulations for the House of Representatives, the Senate, and 
     the other employing offices? No. While there are some 
     differences in other parts of the existing FLSA regulations 
     applicable to the Senate, the House of Representatives, and 
     the other employing offices (chiefly related to the mandate 
     at section 203(c)(3) of the CAA, 2 U.S.C. 1313(c)(3), 
     regarding ``covered employees whose work schedules directly 
     depend on the schedule of the House of Representatives or the 
     Senate . . .''), the Board of Directors has identified no 
     ``good cause'' for varying the text of these regulations. 
     Therefore, if the proposed part 541 regulations are adopted, 
     the prefixes ``H'', ``S'', and ``C'' will be affixed to each 
     of the sets of regulations for the House, for the Senate, and 
     for the other employing offices, but the text of the part 541 
     regulations will be identical.
       How are substantive regulations proposed and approved under 
     the CAA? Section 203(c)(2) of the CAA, 2 U.S.C. 1313(c)(2), 
     requires that the Board of Directors propose substantive 
     regulations implementing the FLSA overtime requirements which 
     are ``the same as substantive regulations promulgated by the 
     Secretary of Labor to implement the statutory provisions . . 
     . except insofar as the Board may determine, for good cause 
     shown and stated together with the regulation, that a 
     modification of such regulation would be more effective for 
     the implementation of the rights and protections under this 
     section.'' Pursuant to section 304 of the CAA, 2 U.S.C. 1384, 
     the procedure for promulgating such substantive regulations 
     requires that: (1) the Board of Directors adopt proposed 
     substantive regulations and publish a general notice of 
     proposed rulemaking in the Congressional Record; (2) there be 
     a comment period of at least 30 days after the date of 
     publication of the general notice of proposed rulemaking; (3) 
     after consideration of comments by the Board of Directors, 
     that the Board adopt regulations and transmit notice of such 
     action together with the regulations and a recommendation 
     regarding the method for Congressional approval of the 
     regulations to the Speaker of the House and President pro 
     tempore of the Senate for publication in the Congressional 
     Record; (4) committee referral and action on the proposed 
     regulations by resolution in each House, concurrent 
     resolution, or by joint resolution; and (5) final publication 
     of the approved regulations in the Congressional Record, with 
     an effective date prescribed in the final publication. For 
     more detail, please reference the text of 2 U.S.C. 1384. This 
     Notice of Proposed Rulemaking is step (1) of the outline set 
     forth above.
       How does the Board of Directors recommend that Congress 
     approve these proposed regulations? Pursuant to section 
     304(b)(4) of the CAA, 2 U.S.C. 1384(b)(4), the Board of 
     Directors is required to ``include a recommendation in the 
     general notice of proposed rulemaking and in the regulations 
     as to whether the regulations should be approved by 
     resolution of the Senate, by resolution of the House of 
     Representatives, by concurrent resolution, or by joint 
     resolution.'' The Board of Directors recommends that the 
     procedure used in 1996 be used to adopt these proposed 
     overtime exemption regulations: the House of Representatives 
     adopted the ``H'' version of the regulations by resolution; 
     the Senate adopted the ``S'' version of the regulations by 
     resolution; and the House and Senate adopted the ``C'' 
     version of the regulations applied to the other employing 
     offices by a concurrent resolution.
       Are these proposed regulations also recommended by the 
     Office of Compliance's Executive Director, the Deputy 
     Executive Director for the House of Representatives, and the 
     Deputy Executive Director for the Senate? Yes, as required by 
     section 304(b)(1) of the CAA, 2 U.S.C. 1384(b)(1), the 
     substance of these regulations is also recommended by the 
     Executive Director and Deputy Executive Directors of the 
     Office of Compliance.
       How are the Secretary of Labor's new overtime exemption 
     regulations different than the old Secretary of Labor 
     regulations at 29 CFR Part 541? The Secretary of Labor has 
     substantially rewritten Part 541. Much of the regulatory 
     framework for determining whether a particular employee 
     should or should not receive overtime pay at time and one-
     half of that employees's regular rate of pay has been 
     restructured under the new Part 541. For the Secretary of 
     Labor's explanation of the substance of the changes, see the 
     Department of Labor's discussion of the new regulations found 
     at: www.dol.gov/fairpay/.
       How similar are the proposed CAA regulations with the new 
     Secretary of Labor regulations? Except for certain required 
     changes, which are shown in the accompanying proposed 
     regulations, the Board of Directors has repeated the text of 
     the regulations at 29 CFR Part 541. ``Good cause'' for 
     modification of the existing regulations of the Secretary of 
     Labor, as required by section 203(c)(2) of the CAA, 2 U.S.C. 
     1313(c)(2), consists of those changes needed to reflect the 
     authority of the CAA as the enabling statute for these 
     regulations, the requirement at section 225(d)(3) of the CAA, 
     2 U.S.C. 1361(d)(3), that the CAA ``shall not be construed to 
     authorize enforcement by the executive branch of this Act. . 
     . .''. If there is any additional good cause for a particular 
     proposed variation from the Secretary of Labor's regulations, 
     it is set out adjacent to that provision of the proposed 
     regulation.
       Are these proposed CAA regulations available to persons 
     with disabilities in an alternate format? This Notice of 
     Adoption of Amendments to the Procedural Rules is available 
     on the Office of Compliance web site, www.compliance.gov 
     which is compliant with section 508 of the Rehabilitation Act 
     of 1973 as amended, 29 U.S.C. 794d. This Notice can also be 
     made available in large print or Braille. Requests for this 
     Notice in an alternative format should be made to: Alma 
     Candelaria, Deputy Executive Director, Office of Compliance, 
     110 2nd Street, S.E., Room LA-200, Washington, D.C. 20540; 
     202-724-9225; TDD: 202-426-1912; FAX: 202-426-1913.


        30-Day Comment Period Regarding the Proposed Regulations

       How can I submit comments regarding the proposed 
     regulations? Comments regarding the proposed new overtime 
     exemption regulations of the Office of Compliance set forth 
     in this NOTICE are invited for a period of thirty (30) days 
     following the date of the appearance of this NOTICE in the 
     Congressional Record. In addition to being posted on the 
     Office of Compliance's section 508 compliant web site 
     (www.compliance.go) this NOTICE is also available in the 
     following alternative formats: Large Print, Braille. Requests 
     for this NOTICE in an alternative format should be made to: 
     Bill Thompson, Executive Director, or Alma Candelaria, Deputy 
     Executive Director, Office of Compliance, at 202-724-9250 
     (voice) or 202-426-1912 (TDD).
       Submission of comments must be made in writing to the 
     Executive Director, Office of Compliance, 110 Second Street, 
     S.E., Room LA-200, Washington, D.C. 20540-1999. It is 
     requested, but not required, that an electronic version of 
     any comments be provided on an accompanying computer disk. 
     Comments may also be submitted by facsimile to the Executive 
     Director at 202-426-1913 (a non-toll-free number.) Those 
     wishing to receive confirmation of the receipt of their 
     comments must provide a self-addressed, stamped post card 
     with their submission.
       Copies of submitted comments will be available for review 
     on the Office's web site at www.compliance.gov, and at the 
     Office of Compliance, 110 Second Street, S.E., Washington, 
     D.C. 20540-1999, on Monday through Friday (non-Federal 
     holidays) between the hours of 9:30 a.m. and 4:30 p.m.
       Supplementary Information: The Congressional Accountability 
     Act of 1995 (CAA), PL 104-1, was enacted into law on January 
     23, 1995. The CAA applies the rights and protections of 12 
     federal labor and employment statutes to covered employees 
     and employing offices within the Legislative Branch of 
     Government. Section 301 of the CAA (2 U.S.C. 1381) 
     establishes the Office of Compliance as an independent office 
     within the Legislative Branch.


                  How To Read The Proposed Amendments

       The text of the proposed amendments reproduces the text of 
     the regulations promulgated on August 23, 2004 by the 
     Secretary of Labor at 29 CFR Part 541, and shows changes 
     proposed for the CAA version of these same regulations. 
     Changes proposed by the Board of Directors of the Office of 
     Compliance are shown as follows: [[deletions within 
     italicized brackets]], and added text in italicized bold. 
     Therefore, if these regulations are approved as proposed, 
     [[bracketed text will disappear from the regulations]], and 
     added text will remain. If these regulations are approved for 
     the House of Representatives by resolution of the House, they 
     will be promulgated with the prefix ``H'' appearing before 
     each regulations section number. If these regulations are 
     approved for the Senate by resolution of the Senate, they 
     will be promulgated with the prefix ``S'' appearing before 
     each regulations section number. If these regulations are 
     approved for the other employing offices by joint or 
     concurrent resolution of the House of Representatives and the 
     Senate, they will be promulgated with the prefix ``C'' 
     appearing before each regulations section number.

                Proposed Overtime Exemption Regulations

    PART 541--DEFINING AND DELIMITING THE EXEMPTIONS FOR EXECUTIVE, 
   ADMINISTRATIVE, PROFESSIONAL, COMPUTER AND OUTSIDE SALES EMPLOYEES

                     Subpart A--General Regulations

Sec.
541.0  Introductory statement.
541.1  Terms used in regulations.
541.2  Job titles insufficient.
541.3  Scope of the section 13(a)(1) exemptions.
541.4  Other laws and collective bargaining agreements.

                     Subpart B--Executive Employees

541.100  General rule for executive employees.
541.101  Business owner.

[[Page H7852]]

541.102  Management.
541.103  Department or subdivision.
541.104  Two or more other employees.
541.105  Particular weight.
541.106  Concurrent duties.

                  Subpart C--Administrative Employees

541.200  General rule for administrative employees.
541.201  Directly related to management or general business operations.
541.202  Discretion and independent judgment.
541.203  Administrative exemption examples.
541.204  Educational establishments.

                   Subpart D--Professional Employees

541.300  General rule for professional employees.
541.301  Learned professionals.
541.302  Creative professionals.
541.303  Teachers.
541.304  Practice of law or medicine.

                     Subpart E--Computer Employees

541.400  General rule for computer employees.
541.401  Computer manufacture and repair.
541.402  Executive and administrative computer employees.

                   Subpart F--Outside Sales Employees

541.500  General rule for outside sales employees.
541.501  Making sales or obtaining orders.
541.502  Away from employer's place of business.
541.503  Promotion work.
541.504  Drivers who sell.

                     Subpart G--Salary Requirements

541.600  Amount of salary required.
541.601  Highly compensated employees.
541.602  Salary basis.
541.603  Effect of improper deductions from salary.
541.604  Minimum guarantee plus extras.
541.605  Fee basis.
541.606  Board, lodging or other facilities.

          Subpart H--Definitions And Miscellaneous Provisions

541.700  Primary duty.
541.701  Customarily and regularly.
541.702  Exempt and nonexempt work.
541.703  Directly and closely related.
541.704  Use of manuals.
541.705  Trainees.
541.706  Emergencies.
541.707  Occasional tasks.
541.708  Combination exemptions.
541.709  Motion picture producing industry.
541.710  Employees of public agencies.
       Authority: 29 U.S.C. 213; [[Public Law 101-583, 104 Stat. 
     2871]]; 2 U.S.C. 203; 2 U.S.C. 304. [[Reorganization Plan No. 
     6 of 1950 (3 CFR 1945-53 Comp. p. 1004); Secretary's Order 
     No. 4-2001 (66 FR 29656).]]

                     Subpart A--General Regulations

       Sec. 541.0  Introductory statement. (a) Section 13(a)(1) of 
     the Fair Labor Standards Act (Act), as amended, and as 
     applied pursuant to section 203 of the Congressional 
     Accountability Act of 1995, 2 U.S.C. 1313, provides an 
     exemption from the Act's minimum wage and overtime 
     requirements for any employee employed in a bona fide 
     executive, administrative, or professional capacity 
     (including any employee employed in the capacity of academic 
     administrative personnel or teacher in elementary or 
     secondary schools), or in the capacity of an outside sales 
     employee, [[as such terms are defined and delimited from time 
     to time by regulations of the Secretary, subject to the 
     provisions of the Administrative Procedure Act.]] Section 
     13(a)(17) of the Act provides an exemption from the minimum 
     wage and overtime requirements for computer systems analysts, 
     computer programmers, software engineers, and other similarly 
     skilled computer employees. (b) The requirements for these 
     exemptions are contained in this part as follows: executive 
     employees, subpart B; administrative employees, subpart C; 
     professional employees, subpart D; computer employees, 
     subpart E; outside sales employees, subpart F. Subpart G 
     contains regulations regarding salary requirements applicable 
     to most of the exemptions, including salary levels and the 
     salary basis test. Subpart G also contains a provision for 
     exempting certain highly compensated employees. Subpart H 
     contains definitions and other miscellaneous provisions 
     applicable to all or several of the exemptions. (c) Effective 
     July 1, 1972, the Fair Labor Standards Act was amended to 
     include within the protection of the equal pay provisions 
     those employees exempt from the minimum wage and overtime pay 
     provisions as bona fide executive, administrative, and 
     professional employees (including any employee employed in 
     the capacity of academic administrative personnel or teacher 
     in elementary or secondary schools), or in the capacity of an 
     outside sales employee under section 13(a)(1) of the Act. The 
     equal pay provisions in section 6(d) of the Fair Labor 
     Standards Act are also administered and enforced by the 
     [[United States Equal Employment Opportunity Commission]] 
     Office of Compliance.
       Sec. 541.1  Terms used in regulations. Act means the Fair 
     Labor Standards Act of 1938, as amended. [[Administrator 
     means the Administrator of the Wage and Hour Division, United 
     States Department of Labor. The Secretary of Labor has 
     delegated to the Administrator the functions vested in the 
     Secretary under sections 13(a)(1) and 13(a)(17) of the Fair 
     Labor Standards Act.]] CAA means Congressional Accountability 
     Act of 1995, as amended. Office means the Office of 
     Compliance. Employee means a ``covered employee'' as defined 
     in section 101(3) through (8) of the CAA, 2 U.S.C. 1301(3) 
     through (8), but not an ``intern'' as defined in section 
     203(a)(2) of the CAA, 2 U.S.C. 1313(a)(2). Employer, company, 
     business, or enterprise each mean an ``employing office'' as 
     defined in section 101(9) of the CAA, 2 U.S.C. 1301(9).
       Sec. 541.2  Job titles insufficient. A job title alone is 
     insufficient to establish the exempt status of an employee. 
     The exempt or nonexempt status of any particular employee 
     must be determined on the basis of whether the employee's 
     salary and duties meet the requirements of the regulations in 
     this part.
       Sec. 541.3  Scope of the section 13(a)(1) exemptions.
       (a) The section 13(a)(1) exemptions and the regulations in 
     this part do not apply to manual laborers or other ``blue 
     collar'' workers who perform work involving repetitive 
     operations with their hands, physical skill and energy. Such 
     nonexempt ``blue collar'' employees gain the skills and 
     knowledge required for performance of their routine manual 
     and physical work through apprenticeships and on-the-job 
     training, not through the prolonged course of specialized 
     intellectual instruction required for exempt learned 
     professional employees such as medical doctors, architects 
     and archeologists. Thus, for example, non-management 
     production-line employees and non-management employees in 
     maintenance, construction and similar occupations such as 
     carpenters, electricians, mechanics, plumbers, iron workers, 
     craftsmen, operating engineers, longshoremen, construction 
     workers and laborers are entitled to minimum wage and 
     overtime premium pay under the Fair Labor Standards Act, and 
     are not exempt under the regulations in this part no matter 
     how highly paid they might be.
       (b)(1) The section 13(a)(1) exemptions and the regulations 
     in this part also do not apply to police officers, 
     detectives, deputy sheriffs, state troopers, highway patrol 
     officers, investigators, inspectors, correctional officers, 
     parole or probation officers, park rangers, fire fighters, 
     paramedics, emergency medical technicians, ambulance 
     personnel, rescue workers, hazardous materials workers and 
     similar employees, regardless of rank or pay level, who 
     perform work such as preventing, controlling or extinguishing 
     fires of any type; rescuing fire, crime or accident victims; 
     preventing or detecting crimes; conducting investigations or 
     inspections for violations of law; performing surveillance; 
     pursuing, restraining and apprehending suspects; detaining or 
     supervising suspected and convicted criminals, including 
     those on probation or parole; interviewing witnesses; 
     interrogating and fingerprinting suspects; preparing 
     investigative reports; or other similar work.
       (2) Such employees do not qualify as exempt executive 
     employees because their primary duty is not management of the 
     enterprise in which the employee is employed or a customarily 
     recognized department or subdivision thereof as required 
     under Sec. 541.100. Thus, for example, a police officer or 
     fire fighter whose primary duty is to investigate crimes or 
     fight fires is not exempt under section 13(a)(1) of the Act 
     merely because the police officer or fire fighter also 
     directs the work of other employees in the conduct of an 
     investigation or fighting a fire.
       (3) Such employees do not qualify as exempt administrative 
     employees because their primary duty is not the performance 
     of work directly related to the management or general 
     business operations of the employer or the employer's 
     customers as required under Sec. 541.200.
       (4) Such employees do not qualify as exempt professionals 
     because their primary duty is not the performance of work 
     requiring knowledge of an advanced type in a field of science 
     or learning customarily acquired by a prolonged course of 
     specialized intellectual instruction or the performance of 
     work requiring invention, imagination, originality or talent 
     in a recognized field of artistic or creative endeavor as 
     required under Sec. 541.300. Although some police officers, 
     fire fighters, paramedics, emergency medical technicians and 
     similar employees have college degrees, a specialized 
     academic degree is not a standard prerequisite for employment 
     in such occupations.
       Sec. 541.4  Other laws and collective bargaining 
     agreements. The Fair Labor Standards Act provides minimum 
     standards that may be exceeded, but cannot be waived or 
     reduced. Employers must comply, for example, with any 
     Federal, State or municipal laws, regulations or ordinances 
     establishing a higher minimum wage or lower maximum workweek 
     than those established under the Act. Similarly, employers, 
     on their own initiative or under a collective bargaining 
     agreement with a labor union, are not precluded by the Act 
     from providing a wage higher than the statutory minimum, a 
     shorter workweek than the statutory maximum, or a higher 
     overtime premium (double time, for example) than provided by 
     the Act. While collective bargaining agreements cannot waive 
     or reduce the Act's protections, nothing in the Act or the 
     regulations in this part relieves employers from their 
     contractual obligations under collective bargaining 
     agreements.

                     Subpart B--Executive Employees

       Sec. 541.100  General rule for executive employees.
       (a) The term ``employee employed in a bona fide executive 
     capacity'' in section 13(a)(1) of the Act shall mean any 
     employee: (1) Compensated on a salary basis at a rate of

[[Page H7853]]

     not less than $455 per week (or $380 per week, if employed in 
     American Samoa by employers other than the Federal 
     Government), exclusive of board, lodging or other facilities; 
     (2) Whose primary duty is management of the enterprise in 
     which the employee is employed or of a customarily recognized 
     department or subdivision thereof; (3) Who customarily and 
     regularly directs the work of two or more other employees; 
     and (4) Who has the authority to hire or fire other employees 
     or whose suggestions and recommendations as to the hiring, 
     firing, advancement, promotion or any other change of status 
     of other employees are given particular weight.
       (b) The phrase ``salary basis'' is defined at Sec. 541.602; 
     ``board, lodging or other facilities'' is defined at Sec. 
     541.606; ``primary duty'' is defined at Sec. 541.700; and 
     ``customarily and regularly'' is defined at Sec. 541.701.
       Sec. 541.101  Business owner. The term ``employee employed 
     in a bona fide executive capacity'' in section 13(a)(1) of 
     the Act also includes any employee who owns at least a bona 
     fide 20-percent percent equity interest in the enterprise in 
     which the employee is employed, regardless of whether the 
     business is a corporate or other type of organization, and 
     who is actively engaged in its management. The term 
     ``management'' is defined in Sec. 541.102. The 
     requirements of Subpart G (salary requirements) of this 
     part do not apply to the business owners described in this 
     section.
       Sec. 541.102  Management. Generally, ``management'' 
     includes, but is not limited to, activities such as 
     interviewing, selecting, and training of employees; setting 
     and adjusting their rates of pay and hours of work; directing 
     the work of employees; maintaining production or sales 
     records for use in supervision or control; appraising 
     employees' productivity and efficiency for the purpose of 
     recommending promotions or other changes in status; handling 
     employee complaints and grievances; disciplining employees; 
     planning the work; determining the techniques to be used; 
     apportioning the work among the employees; determining the 
     type of materials, supplies, machinery, equipment or tools to 
     be used or merchandise to be bought, stocked and sold; 
     controlling the flow and distribution of materials or 
     merchandise and supplies; providing for the safety and 
     security of the employees or the property; planning and 
     controlling the budget; and monitoring or implementing legal 
     compliance measures.
       Sec. 541.103  Department or subdivision. (a) The phrase ``a 
     customarily recognized department or subdivision'' is 
     intended to distinguish between a mere collection of 
     employees assigned from time to time to a specific job or 
     series of jobs and a unit with permanent status and function. 
     A customarily recognized department or subdivision must have 
     a permanent status and a continuing function. For example, a 
     large employer's human resources department might have 
     subdivisions for labor relations, pensions and other 
     benefits, equal employment opportunity, and personnel 
     management, each of which has a permanent status and 
     function. (b) When an enterprise has more than one 
     establishment, the employee in charge of each establishment 
     may be considered in charge of a recognized subdivision of 
     the enterprise. (c) A recognized department or subdivision 
     need not be physically within the employer's establishment 
     and may move from place to place. The mere fact that the 
     employee works in more than one location does not invalidate 
     the exemption if other factors show that the employee is 
     actually in charge of a recognized unit with a continuing 
     function in the organization. (d) Continuity of the same 
     subordinate personnel is not essential to the existence of a 
     recognized unit with a continuing function. An otherwise 
     exempt employee will not lose the exemption merely because 
     the employee draws and supervises workers from a pool or 
     supervises a team of workers drawn from other recognized 
     units, if other factors are present that indicate that the 
     employee is in charge of a recognized unit with a continuing 
     function.
       Sec. 541.104  Two or more other employees. (a) To qualify 
     as an exempt executive under Sec. 541.100, the employee must 
     customarily and regularly direct the work of two or more 
     other employees. The phrase ``two or more other employees'' 
     means two full-time employees or their equivalent. One full-
     time and two half-time employees, for example, are equivalent 
     to two full-time employees. Four half-time employees are also 
     equivalent. (b) The supervision can be distributed among two, 
     three or more employees, but each such employee must 
     customarily and regularly direct the work of two or more 
     other full-time employees or the equivalent. Thus, for 
     example, a department with five full-time nonexempt workers 
     may have up to two exempt supervisors if each such supervisor 
     customarily and regularly directs the work of two of those 
     workers. (c) An employee who merely assists the manager of a 
     particular department and supervises two or more employees 
     only in the actual manager's absence does not meet this 
     requirement. (d) Hours worked by an employee cannot be 
     credited more than once for different executives. Thus, a 
     shared responsibility for the supervision of the same two 
     employees in the same department does not satisfy this 
     requirement. However, a full-time employee who works four 
     hours for one supervisor and four hours for a different 
     supervisor, for example, can be credited as a half-time 
     employee for both supervisors.
       Sec. 541.105  Particular weight. To determine whether an 
     employee's suggestions and recommendations are given 
     ``particular weight,'' factors to be considered include, but 
     are not limited to, whether it is part of the employee's job 
     duties to make such suggestions and recommendations; the 
     frequency with which such suggestions and recommendations are 
     made or requested; and the frequency with which the 
     employee's suggestions and recommendations are relied upon. 
     Generally, an executive's suggestions and recommendations 
     must pertain to employees whom the executive customarily and 
     regularly directs. It does not include an occasional 
     suggestion with regard to the change in status of a co-
     worker. An employee's suggestions and recommendations may 
     still be deemed to have ``particular weight'' even if a 
     higher level manager's recommendation has more importance and 
     even if the employee does not have authority to make the 
     ultimate decision as to the employee's change in status.
       Sec. 541.106  Concurrent duties.
       (a) Concurrent performance of exempt and nonexempt work 
     does not disqualify an employee from the executive exemption 
     if the requirements of Sec. 541.100 are otherwise met. 
     Whether an employee meets the requirements of Sec. 541.100 
     when the employee performs concurrent duties is determined on 
     a case-by-case basis and based on the factors set forth in 
     Sec. 541.700. Generally, exempt executives make the decision 
     regarding when to perform nonexempt duties and remain 
     responsible for the success or failure of business operations 
     under their management while performing the nonexempt work. 
     In contrast, the nonexempt employee generally is directed by 
     a supervisor to perform the exempt work or performs the 
     exempt work for defined time periods. An employee whose 
     primary duty is ordinary production work or routine, 
     recurrent or repetitive tasks cannot qualify for exemption as 
     an executive.
       (b) For example, an assistant manager in a retail 
     establishment may perform work such as serving customers, 
     cooking food, stocking shelves and cleaning the 
     establishment, but performance of such nonexempt work does 
     not preclude the exemption if the assistant manager's primary 
     duty is management. An assistant manager can supervise 
     employees and serve customers at the same time without losing 
     the exemption. An exempt employee can also simultaneously 
     direct the work of other employees and stock shelves.
       (c) In contrast, a relief supervisor or working supervisor 
     whose primary duty is performing nonexempt work on the 
     production line in a manufacturing plant does not become 
     exempt merely because the nonexempt production line employee 
     occasionally has some responsibility for directing the work 
     of other nonexempt production line employees when, for 
     example, the exempt supervisor is unavailable. Similarly, an 
     employee whose primary duty is to work as an electrician is 
     not an exempt executive even if the employee also directs the 
     work of other employees on the job site, orders parts and 
     materials for the job, and handles requests from the prime 
     contractor.

                  Subpart C--Administrative Employees

       Sec. 541.200  General rule for administrative employees.
       (a) The term ``employee employed in a bona fide 
     administrative capacity'' in section 13(a)(1) of the Act 
     shall mean any employee: (1) Compensated on a salary or fee 
     basis at a rate of not less than $455 per week (or $380 per 
     week, if employed in American Samoa by employers other than 
     the Federal Government), exclusive of board, lodging or other 
     facilities; (2) Whose primary duty is 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 (3) Whose primary duty includes the 
     exercise of discretion and independent judgment with respect 
     to matters of significance.
       (b) The term ``salary basis'' is defined at Sec. 541.602; 
     ``fee basis'' is defined at Sec. 541.605; ``board, lodging or 
     other facilities'' is defined at Sec. 541.606; and ``primary 
     duty'' is defined at Sec. 541.700.
       Sec. 541.201  Directly related to management or general 
     business operations.
       (a) To qualify for the administrative exemption, an 
     employee's primary duty must be the performance of work 
     directly related to the management or general business 
     operations of the employer or the employer's customers. The 
     phrase ``directly related to the management or general 
     business operations'' refers to the type of work performed by 
     the employee. To meet this requirement, an employee must 
     perform work directly related to assisting with the running 
     or servicing of the business, as distinguished, for example, 
     from working on a manufacturing production line or selling a 
     product in a retail or service establishment.
       (b) Work directly related to management or general business 
     operations includes, but is not limited to, work in 
     functional areas such as tax; finance; accounting; budgeting; 
     auditing; insurance; quality control; purchasing; 
     procurement; advertising; marketing; research; safety and 
     health; personnel management; human resources; employee 
     benefits; labor relations; public relations, government 
     relations; computer network, internet and database 
     administration; legal and regulatory compliance; and similar 
     activities. Some of these activities may be performed by 
     employees who also would qualify for another exemption.
       (c) An employee may qualify for the administrative 
     exemption if the employee's primary duty is the performance 
     of work directly related to the management or general

[[Page H7854]]

     business operations of the employer's customers. Thus, for 
     example, employees acting as advisers or consultants to their 
     employer's clients or customers (as tax experts or financial 
     consultants, for example) may be exempt.
       Sec. 541.202 Discretion and independent judgment.
       (a) To qualify for the administrative exemption, an 
     employee's primary duty must include the exercise of 
     discretion and independent judgment with respect to matters 
     of significance. In general, the exercise of discretion and 
     independent judgment involves the comparison and the 
     evaluation of possible courses of conduct, and acting or 
     making a decision after the various possibilities have been 
     considered. The term ``matters of significance'' refers to 
     the level of importance or consequence of the work performed.
       (b) The phrase ``discretion and independent judgment'' must 
     be applied in the light of all the facts involved in the 
     particular employment situation in which the question arises. 
     Factors to consider when determining whether an employee 
     exercises discretion and independent judgment with respect to 
     matters of significance include, but are not limited to: 
     whether the employee has authority to formulate, affect, 
     interpret, or implement management policies or operating 
     practices; whether the employee carries out major assignments 
     in conducting the operations of the business; whether the 
     employee performs work that affects business operations to a 
     substantial degree, even if the employee's assignments are 
     related to operation of a particular segment of the business; 
     whether the employee has authority to commit the employer in 
     matters that have significant financial impact; whether the 
     employee has authority to waive or deviate from established 
     policies and procedures without prior approval; whether the 
     employee has authority to negotiate and bind the company on 
     significant matters; whether the employee provides 
     consultation or expert advice to management; whether the 
     employee is involved in planning long- or short-term business 
     objectives; whether the employee investigates and resolves 
     matters of significance on behalf of management; and whether 
     the employee represents the company in handling complaints, 
     arbitrating disputes or resolving grievances.
       (c) The exercise of discretion and independent judgment 
     implies that the employee has authority to make an 
     independent choice, free from immediate direction or 
     supervision. However, employees can exercise discretion and 
     independent judgment even if their decisions or 
     recommendations are reviewed at a higher level. Thus, the 
     term ``discretion and independent judgment'' does not require 
     that the decisions made by an employee have a finality that 
     goes with unlimited authority and a complete absence of 
     review. The decisions made as a result of the exercise of 
     discretion and independent judgment may consist of 
     recommendations for action rather than the actual taking of 
     action. The fact that an employee's decision may be subject 
     to review and that upon occasion the decisions are revised or 
     reversed after review does not mean that the employee is not 
     exercising discretion and independent judgment. For example, 
     the policies formulated by the credit manager of a large 
     corporation may be subject to review by higher company 
     officials who may approve or disapprove these policies. The 
     management consultant who has made a study of the operations 
     of a business and who has drawn a proposed change in 
     organization may have the plan reviewed or revised by 
     superiors before it is submitted to the client.
       (d) An employer's volume of business may make it necessary 
     to employ a number of employees to perform the same or 
     similar work. The fact that many employees perform identical 
     work or work of the same relative importance does not mean 
     that the work of each such employee does not involve the 
     exercise of discretion and independent judgment with respect 
     to matters of significance.
       (e) The exercise of discretion and independent judgment 
     must be more than the use of skill in applying well-
     established techniques, procedures or specific standards 
     described in manuals or other sources. See also Sec. 541.704 
     regarding use of manuals. The exercise of discretion and 
     independent judgment also does not include clerical or 
     secretarial work, recording or tabulating data, or performing 
     other mechanical, repetitive, recurrent or routine work. An 
     employee who simply tabulates data is not exempt, even if 
     labeled as a ``statistician.''
       (f) An employee does not exercise discretion and 
     independent judgment with respect to matters of significance 
     merely because the employer will experience financial losses 
     if the employee fails to perform the job properly. For 
     example, a messenger who is entrusted with carrying large 
     sums of money does not exercise discretion and independent 
     judgment with respect to matters of significance even though 
     serious consequences may flow from the employee's neglect. 
     Similarly, an employee who operates very expensive equipment 
     does not exercise discretion and independent judgment with 
     respect to matters of significance merely because improper 
     performance of the employee's duties may cause serious 
     financial loss to the employer. Sec. 541.203 
     Administrative exemption examples.
       (a) Insurance claims adjusters generally meet the duties 
     requirements for the administrative exemption, whether they 
     work for an insurance company or other type of company, if 
     their duties include activities such as interviewing 
     insureds, witnesses and physicians; inspecting property 
     damage; reviewing factual information to prepare damage 
     estimates; evaluating and making recommendations regarding 
     coverage of claims; determining liability and total value of 
     a claim; negotiating settlements; and making recommendations 
     regarding litigation.
       (b) Employees in the financial services industry generally 
     meet the duties requirements for the administrative exemption 
     if their duties include work such as collecting and analyzing 
     information regarding the customer's income, assets, 
     investments or debts; determining which financial products 
     best meet the customer's needs and financial circumstances; 
     advising the customer regarding the advantages and 
     disadvantages of different financial products; and marketing, 
     servicing or promoting the employer's financial products. 
     However, an employee whose primary duty is selling financial 
     products does not qualify for the administrative exemption.
       (c) An employee who leads a team of other employees 
     assigned to complete major projects for the employer (such as 
     purchasing, selling or closing all or part of the business, 
     negotiating a real estate transaction or a collective 
     bargaining agreement, or designing and implementing 
     productivity improvements) generally meets the duties 
     requirements for the administrative exemption, even if the 
     employee does not have direct supervisory responsibility over 
     the other employees on the team.
       (d) An executive assistant or administrative assistant to a 
     business owner or senior executive of a large business 
     generally meets the duties requirements for the 
     administrative exemption if such employee, without specific 
     instructions or prescribed procedures, has been delegated 
     authority regarding matters of significance.
       (e) Human resources managers who formulate, interpret or 
     implement employment policies and management consultants who 
     study the operations of a business and propose changes in 
     organization generally meet the duties requirements for the 
     administrative exemption. However, personnel clerks who 
     ``screen'' applicants to obtain data regarding their minimum 
     qualifications and fitness for employment generally do not 
     meet the duties requirements for the administrative 
     exemption. Such personnel clerks typically will reject all 
     applicants who do not meet minimum standards for the 
     particular job or for employment by the company. The minimum 
     standards are usually set by the exempt human resources 
     manager or other company officials, and the decision to hire 
     from the group of qualified applicants who do meet the 
     minimum standards is similarly made by the exempt human 
     resources manager or other company officials. Thus, when the 
     interviewing and screening functions are performed by the 
     human resources manager or personnel manager who makes the 
     hiring decision or makes recommendations for hiring from the 
     pool of qualified applicants, such duties constitute exempt 
     work, even though routine, because this work is directly and 
     closely related to the employee's exempt functions.
       (f) Purchasing agents with authority to bind the company on 
     significant purchases generally meet the duties requirements 
     for the administrative exemption even if they must consult 
     with top management officials when making a purchase 
     commitment for raw materials in excess of the contemplated 
     plant needs.
       (g) Ordinary inspection work generally does not meet the 
     duties requirements for the administrative exemption. 
     Inspectors normally perform specialized work along 
     standardized lines involving well-established techniques and 
     procedures which may have been catalogued and described in 
     manuals or other sources. Such inspectors rely on techniques 
     and skills acquired by special training or experience. They 
     have some leeway in the performance of their work but only 
     within closely prescribed limits.
       (h) Employees usually called examiners or graders, such as 
     employees that grade lumber, generally do not meet the duties 
     requirements for the administrative exemption. Such employees 
     usually perform work involving the comparison of products 
     with established standards which are frequently catalogued. 
     Often, after continued reference to the written standards, or 
     through experience, the employee acquires sufficient 
     knowledge so that reference to written standards is 
     unnecessary. The substitution of the employee's memory for a 
     manual of standards does not convert the character of the 
     work performed to exempt work requiring the exercise of 
     discretion and independent judgment.
       (i) Comparison shopping performed by an employee of a 
     retail store who merely reports to the buyer the prices at a 
     competitor's store does not qualify for the administrative 
     exemption. However, the buyer who evaluates such reports on 
     competitor prices to set the employer's prices generally 
     meets the duties requirements for the administrative 
     exemption.
       (j) Public sector inspectors or investigators of various 
     types, such as fire prevention or safety, building or 
     construction, health or sanitation, environmental or soils 
     specialists and similar employees, generally do not meet the 
     duties requirements for the administrative exemption because 
     their work typically does not involve work directly related 
     to the management or general business operations of the 
     employer. Such employees also do not qualify for the 
     administrative exemption because their work involves the use 
     of

[[Page H7855]]

     skills and technical abilities in gathering factual 
     information, applying known standards or prescribed 
     procedures, determining which procedure to follow, or 
     determining whether prescribed standards or criteria are met.
       Sec. 541.204  Educational establishments.
       (a) The term ``employee employed in a bona fide 
     administrative capacity'' in section 13(a)(1) of the Act also 
     includes employees: (1) Compensated for services on a salary 
     or fee basis at a rate of not less than $455 per week (or 
     $380 per week, if employed in American Samoa by employers 
     other than the Federal Government) exclusive of board, 
     lodging or other facilities, or on a salary basis which is at 
     least equal to the entrance salary for teachers in the 
     educational establishment by which employed; and (2) Whose 
     primary duty is performing administrative functions directly 
     related to academic instruction or training in an educational 
     establishment or department or subdivision thereof.
       (b) The term ``educational establishment'' means an 
     elementary or secondary school system, an institution of 
     higher education or other educational institution. Sections 
     3(v) and 3(w) of the Act define elementary and secondary 
     schools as those day or residential schools that provide 
     elementary or secondary education, as determined under State 
     law. Under the laws of most States, such education includes 
     the curriculums in grades 1 through 12; under many it 
     includes also the introductory programs in kindergarten. Such 
     education in some States may also include nursery school 
     programs in elementary education and junior college 
     curriculums in secondary education. The term ``other 
     educational establishment'' includes special schools for 
     mentally or physically disabled or gifted children, 
     regardless of any classification of such schools as 
     elementary, secondary or higher. Factors relevant in 
     determining whether post-secondary career programs are 
     educational institutions include whether the school is 
     licensed by a state agency responsible for the state's 
     educational system or accredited by a nationally 
     recognized accrediting organization for career schools. 
     Also, for purposes of the exemption, no distinction is 
     drawn between public and private schools, or between those 
     operated for profit and those that are not for profit.
       (c) The phrase ``performing administrative functions 
     directly related to academic instruction or training'' means 
     work related to the academic operations and functions in a 
     school rather than to administration along the lines of 
     general business operations. Such academic administrative 
     functions include operations directly in the field of 
     education. Jobs relating to areas outside the educational 
     field are not within the definition of academic 
     administration.
       (1) Employees engaged in academic administrative functions 
     include: the superintendent or other head of an elementary or 
     secondary school system, and any assistants, responsible for 
     administration of such matters as curriculum, quality and 
     methods of instructing, measuring and testing the learning 
     potential and achiovement of students, establishing and 
     maintaining academic and grading standards, and other aspects 
     of the teaching program; the principal and any vice-
     principals responsible for the operation of an elementary or 
     secondary school; department heads in institutions of higher 
     education responsible for the administration of the 
     mathematics department, the English department, the foreign 
     language department, etc.; academic counselors who perform 
     work such as administering school testing programs, assisting 
     students with academic problems and advising students 
     concerning degree requirements; and other employees with 
     similar responsibilities.
       (2) Jobs relating to building management and maintenance, 
     jobs relating to the health of the students, and academic 
     staff such as social workers, psychologists, lunch room 
     managers or dietitians do not perform academic administrative 
     functions. Although such work is not considered academic 
     administration, such employees may qualify for exemption 
     under Sec. 541.200 or under other sections of this part, 
     provided the requirements for such exemptions are met.

                   Subpart D--Professional Employees

       Sec. 541.300  General rule for professional employees.
       (a) The term ``employee employed in a bona fide 
     professional capacity'' in section 13(a)(1) of the Act shall 
     mean any employee: (1) Compensated on a salary or fee basis 
     at a rate of not less than $455 per week (or $380 per week, 
     if employed in American Samoa by employers other than the 
     Federal Government), exclusive of board, lodging, or other 
     facilities; and (2) Whose primary duty is the performance of 
     work: (i) Requiring knowledge of an advanced type in a field 
     of science or learning customarily acquired by a prolonged 
     course of specialized intellectual instruction; or (ii) 
     Requiring invention, imagination, originality or talent in a 
     recognized field of artistic or creative endeavor.
       (b) The term ``salary basis'' is defined at Sec. 541.602; 
     ``fee basis'' is defined at Sec. 541.605; ``board, lodging or 
     other facilities'' is defined at Sec. 541.606; and ``primary 
     duty'' is defined at Sec. 541.700.
       Sec. 541.301  Learned professionals.
       (a) To qualify for the learned professional exemption, an 
     employee's primary duty must be the performance of work 
     requiring advanced knowledge in a field of science or 
     learning customarily acquired by a prolonged course of 
     specialized intellectual instruction. This primary duty test 
     includes three elements: (1) The employee must perform work 
     requiring advanced knowledge;
       (2) The advanced knowledge must be in a field of science or 
     learning; and (3) The advanced knowledge must be customarily 
     acquired by a prolonged course of specialized intellectual 
     instruction.
       (b) The phrase ``work requiring advanced knowledge'' means 
     work which is predominantly intellectual in character, and 
     which includes work requiring the consistent exercise of 
     discretion and judgment, as distinguished from performance of 
     routine mental, manual, mechanical or physical work. An 
     employee who performs work requiring advanced knowledge 
     generally uses the advanced knowledge to analyze, interpret 
     or make deductions from varying facts or circumstances. 
     Advanced knowledge cannot be attained at the high school 
     level.
       (c) The phrase ``field of science or learning'' includes 
     the traditional professions of law, medicine, theology, 
     accounting, actuarial computation, engineering, architecture, 
     teaching, various types of physical, chemical and biological 
     sciences, pharmacy and other similar occupations that have a 
     recognized professional status as distinguished from the 
     mechanical arts or skilled trades where in some instances the 
     knowledge is of a fairly advanced type, but is not in a field 
     of science or learning.
       (d) The phrase ``customarily acquired by a prolonged course 
     of specialized intellectual instruction'' restricts the 
     exemption to professions where specialized academic training 
     is a standard prerequisite for entrance into the profession. 
     The best prima facie evidence that an employee meets this 
     requirement is possession of the appropriate academic degree. 
     However, the word ``customarily'' means that the exemption is 
     also available to employees in such professions who have 
     substantially the same knowledge level and perform 
     substantially the same work as the degreed employees, but who 
     attained the advanced knowledge through a combination of work 
     experience and intellectual instruction. Thus, for example, 
     the learned professional exemption is available to the 
     occasional lawyer who has not gone to law school, or the 
     occasional chemist who is not the possessor of a degree in 
     chemistry. However, the learned professional exemption is not 
     available for occupations that customarily may be performed 
     with only the general knowledge acquired by an academic 
     degree in any field, with knowledge acquired through an 
     apprenticeship, or with training in the performance of 
     routine mental, manual, mechanical or physical processes. The 
     learned professional exemption also does not apply to 
     occupations in which most employees have acquired their skill 
     by experience rather than by advanced specialized 
     intellectual instruction.
       (e)(1) Registered or certified medical technologists. 
     Registered or certified medical technologists who have 
     successfully completed three academic years of pre-
     professional study in an accredited college or university 
     plus a fourth year of professional course work in a school of 
     medical technology approved by the Council of Medical 
     Education of the American Medical Association generally meet 
     the duties requirements for the learned professional 
     exemption. (2) Nurses. Registered nurses who are registered 
     by the appropriate State examining board generally meet the 
     duties requirements for the learned professional exemption. 
     Licensed practical nurses and other similar health care 
     employees, however, generally do not qualify as exempt 
     learned professionals because possession of a specialized 
     advanced academic degree is not a standard prerequisite 
     for entry into such occupations. (3) Dental hygienists. 
     Dental hygienists who have successfully completed four 
     academic years of pre-professional and professional study 
     in an accredited college or university approved by the 
     Commission on Accreditation of Dental and Dental Auxiliary 
     Educational Programs of the American Dental Association 
     generally meet the duties requirements for the learned 
     professional exemption. (4) Physician assistants. 
     Physician assistants who have successfully completed four 
     academic years of pre-professional and professional study, 
     including graduation from a physician assistant program 
     accredited by the Accreditation Review Commission on 
     Education for the Physician Assistant, and who are 
     certified by the National Commission on Certification of 
     Physician Assistants generally meet the duties 
     requirements for the learned professional exemption. (5) 
     Accountants. Certified public accountants generally meet 
     the duties requirements for the learned professional 
     exemption. In addition, many other accountants who are not 
     certified public accountants but perform similar job 
     duties may qualify as exempt learned professionals. 
     However, accounting clerks, bookkeepers and other 
     employees who normally perform a great deal of routine 
     work generally will not qualify as exempt professionals. 
     (6) Chefs. Chefs, such as executive chefs and sous chefs, 
     who have attained a four-year specialized academic degree 
     in a culinary arts program, generally meet the duties 
     requirements for the learned professional exemption. The 
     learned professional exemption is not available to cooks 
     who perform predominantly routine mental, manual, 
     mechanical or physical work. (7) Paralegals. Paralegals 
     and legal assistants generally do not qualify as exempt 
     learned

[[Page H7856]]

     professionals because an advanced specialized academic 
     degree is not a standard prerequisite for entry into the 
     field. Although many paralegals possess general four-year 
     advanced degrees, most specialized paralegal programs are 
     two-year associate degree programs from a community 
     college or equivalent institution. However, the learned 
     professional exemption is available for paralegals who 
     possess advanced specialized degrees in other professional 
     fields and apply advanced knowledge in that field in the 
     performance of their duties. For example, if a law firm 
     hires an engineer as a paralegal to provide expert advice 
     on product liability cases or to assist on patent matters, 
     that engineer would qualify for exemption. (8) Athletic 
     trainers. Athletic trainers who have successfully 
     completed four academic years of pre-professional and 
     professional study in a specialized curriculum accredited 
     by the Commission on Accreditation of Allied Health 
     Education Programs and who are certified by the Board of 
     Certification of the National Athletic Trainers 
     Association Board of Certification generally meet the 
     duties requirements for the learned professional 
     exemption. (9) Funeral directors or embalmers. Licensed 
     funeral directors and embalmers who are licensed by and 
     working in a state that requires successful completion of 
     four academic years of pre-professional and professional 
     study, including graduation from a college of mortuary 
     science accredited by the American Board of Funeral 
     Service Education, generally meet the duties requirements 
     for the learned professional exemption.
       (f) The areas in which the professional exemption may be 
     available are expanding. As knowledge is developed, academic 
     training is broadened and specialized degrees are offered in 
     new and diverse fields, thus creating new specialists in 
     particular fields of science or learning. When an advanced 
     specialized degree has become a standard requirement for a 
     particular occupation, that occupation may have acquired the 
     characteristics of a learned profession. Accrediting and 
     certifying organizations similar to those listed in 
     paragraphs (e)(1), (e)(3), (e)(4), (e)(8) and (e)(9) of this 
     section also may be created in the future. Such organizations 
     may develop similar specialized curriculums and certification 
     programs which, if a standard requirement for a particular 
     occupation, may indicate that the occupation has acquired the 
     characteristics of a learned profession.
       Sec. 541.302  Creative professionals.
       (a) To qualify for the creative professional exemption, an 
     employee's primary duty must be the performance of work 
     requiring invention, imagination, originality or talent in a 
     recognized field of artistic or creative endeavor as opposed 
     to routine mental, manual, mechanical or physical work. The 
     exemption does not apply to work which can be produced by a 
     person with general manual or intellectual ability and 
     training.
       (b) To qualify for exemption as a creative professional, 
     the work performed must be ``in a recognized field of 
     artistic or creative endeavor.'' This includes such fields as 
     music, writing, acting and the graphic arts.
       (c) The requirement of ``invention, imagination, 
     originality or talent'' distinguishes the creative 
     professions from work that primarily depends on intelligence, 
     diligence and accuracy. The duties of employees vary widely, 
     and exemption as a creative professional depends on the 
     extent of the invention, imagination, originality or talent 
     exercised by the employee. Determination of exempt creative 
     professional status, therefore, must be made on a case-by-
     case basis. This requirement generally is met by actors, 
     musicians, composers, conductors, and soloists; painters who 
     at most are given the subject matter of their painting; 
     cartoonists who are merely told the title or underlying 
     concept of a cartoon and must rely on their own creative 
     ability to express the concept; essayists, novelists, short-
     story writers and screen-play writers who choose their own 
     subjects and hand in a finished piece of work to their 
     employers (the majority of such persons are, of course, not 
     employees but self-employed); and persons holding the more 
     responsible writing positions in advertising agencies. This 
     requirement generally is not met by a person who is employed 
     as a copyist, as an ``animator'' of motion-picture cartoons, 
     or as a retoucher of photographs, since such work is not 
     properly described as creative in character.
       (d) Journalists may satisfy the duties requirements for the 
     creative professional exemption if their primary duty is work 
     requiring invention, imagination, originality or talent, as 
     opposed to work which depends primarily on intelligence, 
     diligence and accuracy. Employees of newspapers, magazines, 
     television and other media are not exempt creative 
     professionals if they only collect, organize and record 
     information that is routine or already public, or if they do 
     not contribute a unique interpretation or analysis to a news 
     product. Thus, for example, newspaper reporters who merely 
     rewrite press releases or who write standard recounts of 
     public information by gathering facts on routine community 
     events are not exempt creative professionals. Reporters also 
     do not qualify as exempt creative professionals if their work 
     product is subject to substantial control by the employer. 
     However, journalists may qualify as exempt creative 
     professionals if their primary duty is performing on the air 
     in radio, television or other electronic media; conducting 
     investigative interviews; analyzing or interpreting public 
     events; writing editorials, opinion columns or other 
     commentary; or acting as a narrator or commentator.
       Sec. 541.303  Teachers.
       (a) The term ``employee employed in a bona fide 
     professional capacity'' in section 13(a)(1) of the Act also 
     means any employee with a primary duty of teaching, tutoring, 
     instructing or lecturing in the activity of imparting 
     knowledge and who is employed and engaged in this activity as 
     a teacher in an educational establishment by which the 
     employee is employed. The term ``educational establishment'' 
     is defined in Sec. 541.204(b).
       (b) Exempt teachers include, but are not limited to: 
     Regular academic teachers; teachers of kindergarten or 
     nursery school pupils; teachers of gifted or disabled 
     children; teachers of skilled and semi- skilled trades and 
     occupations; teachers engaged in automobile driving 
     instruction; aircraft flight instructors; home economics 
     teachers; and vocal or instrumental music instructors. Those 
     faculty members who are engaged as teachers but also spend a 
     considerable amount of their time in extracurricular 
     activities such as coaching athletic teams or acting as 
     moderators or advisors in such areas as drama, speech, debate 
     or journalism are engaged in teaching. Such activities are a 
     recognized part of the schools' responsibility in 
     contributing to the educational development of the student.
       (c) The possession of an elementary or secondary teacher's 
     certificate provides a clear means of identifying the 
     individuals contemplated as being within the scope of the 
     exemption for teaching professionals. Teachers who possess a 
     teaching certificate qualify for the exemption regardless of 
     the terminology (e.g., permanent, conditional, standard, 
     provisional, temporary, emergency, or unlimited) used by the 
     State to refer to different kinds of certificates. However, 
     private schools and public schools are not uniform in 
     requiring a certificate for employment as an elementary or 
     secondary school teacher, and a teacher's certificate is not 
     generally necessary for employment in institutions of higher 
     education or other educational establishments. Therefore, a 
     teacher who is not certified may be considered for exemption, 
     provided that such individual is employed as a teacher by the 
     employing school or school system.
       (d) The requirements of Sec. 541.300 and Subpart G (salary 
     requirements) of this part do not apply to the teaching 
     professionals described in this section.
       Sec. 541.304  Practice of law or medicine.
       (a) The term ``employee employed in a bona fide 
     professional capacity'' in section 13(a)(1) of the Act also 
     shall mean: (1) Any employee who is the holder of a valid 
     license or certificate permitting the practice of law or 
     medicine or any of their branches and is actually engaged in 
     the practice thereof; and (2) Any employee who is the holder 
     of the requisite academic degree for the general practice of 
     medicine and is engaged in an internship or resident program 
     pursuant to the practice of the profession.
       (b) In the case of medicine, the exemption applies to 
     physicians and other practitioners licensed and practicing in 
     the field of medical science and healing or any of the 
     medical specialties practiced by physicians or practitioners. 
     The term ``physicians'' includes medical doctors including 
     general practitioners and specialists, osteopathic physicians 
     (doctors of osteopathy), podiatrists, dentists (doctors of 
     dental medicine), and optometrists (doctors of optometry or 
     bachelors of science in optometry).
       (c) Employees engaged in internship or resident programs, 
     whether or not licensed to practice prior to commencement of 
     the program, qualify as exempt professionals if they enter 
     such internship or resident programs after the earning of the 
     appropriate degree required for the general practice of their 
     profession.
       (d) The requirements of Sec. 541.300 and subpart G (salary 
     requirements) of this part do not apply to the employees 
     described in this section.

                     Subpart E--Computer Employees

       Sec. 541.400  General rule for computer employees.
       (a) Computer systems analysts, computer programmers, 
     software engineers or other similarly skilled workers in the 
     computer field are eligible for exemption as professionals 
     under section 13(a)(1) of the Act and under section 13(a)(17) 
     of the Act. Because job titles vary widely and change quickly 
     in the computer industry, job titles are not determinative of 
     the applicability of this exemption.
       (b) The section 13(a)(1) exemption applies to any computer 
     employee compensated on a salary or fee basis at a rate of 
     not less than $455 per week (or $380 per week, if employed in 
     American Samoa by employers other than the Federal 
     Government), exclusive of board, lodging or other facilities, 
     and the section 13(a)(17) exemption applies to any computer 
     employee compensated on an hourly basis at a rate not less 
     than $27.63 an hour. In addition, under either section 
     13(a)(1) or section 13(a)(17) of the Act, the exemptions 
     apply only to computer employees whose primary duty consists 
     of: (1) The application of systems analysis techniques and 
     procedures, including consulting with users, to determine 
     hardware, software or system functional specifications; (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; (3) The design, documentation, 
     testing, creation or modification of computer

[[Page H7857]]

     programs related to machine operating systems; or (4) A 
     combination of the aforementioned duties, the performance of 
     which requires the same level of skills.
       (c) The term ``salary basis'' is defined at Sec. 541.602; 
     ``fee basis'' is defined at Sec. 541.605; ``board, lodging or 
     other facilities'' is defined at Sec. 541.606; and 
     ``primary duty'' is defined at Sec. 541.700.
       Sec. 541.401  Computer manufacture and repair. The 
     exemption for employees in computer occupations does not 
     include employees engaged in the manufacture or repair of 
     computer hardware and related equipment. Employees whose work 
     is highly dependent upon, or facilitated by, the use of 
     computers and computer software programs (e.g., engineers, 
     drafters and others skilled in computer-aided design 
     software), but who are not primarily engaged in computer 
     systems analysis and programming or other similarly skilled 
     computer-related occupations identified in Sec. 541.400(b), 
     are also not exempt computer professionals.
       Sec. 541.402  Executive and administrative computer 
     employees. Computer employees within the scope of this 
     exemption, as well as those employees not within its scope, 
     may also have executive and administrative duties which 
     qualify the employees for exemption under subpart B or 
     subpart C of this part. For example, systems analysts and 
     computer programmers generally meet the duties requirements 
     for the administrative exemption if their primary duty 
     includes work such as planning, scheduling, and coordinating 
     activities required to develop systems to solve complex 
     business, scientific or engineering problems of the employer 
     or the employer's customers. Similarly, a senior or lead 
     computer programmer who manages the work of two or more other 
     programmers in a customarily recognized department or 
     subdivision of the employer, and whose recommendations as to 
     the hiring, firing, advancement, promotion or other change of 
     status of the other programmers are given particular weight, 
     generally meets the duties requirements for the executive 
     exemption.

                   Subpart F--Outside Sales Employees

       Sec. 541.500  General rule for outside sales employees. (a) 
     The term ``employee employed in the capacity of outside 
     salesman'' in section 13(a)(1) of the Act shall mean any 
     employee: (1) Whose primary duty is: (i) making sales within 
     the meaning of section 3(k) of the Act, or (ii) obtaining 
     orders or contracts for services or for the use of facilities 
     for which a consideration will be paid by the client or 
     customer; and (2) Who is customarily and regularly engaged 
     away from the employer's place or places of business in 
     performing such primary duty.
       (b) The term ``primary duty'' is defined at Sec. 541.700. 
     In determining the primary duty of an outside sales employee, 
     work performed incidental to and in conjunction with the 
     employee's own outside sales or solicitations, including 
     incidental deliveries and collections, shall be regarded as 
     exempt outside sales work. Other work that furthers the 
     employee's sales efforts also shall be regarded as exempt 
     work including, for example, writing sales reports, updating 
     or revising the employee's sales or display catalogue, 
     planning itineraries and attending sales conferences.
       (c) The requirements of subpart G (salary requirements) of 
     this part do not apply to the outside sales employees 
     described in this section.
       Sec. 541.501  Making sales or obtaining orders.
       (a) Section 541.500 requires that the employee be engaged 
     in: (1) Making sales within the meaning of section 3(k) of 
     the Act, or (2) Obtaining orders or contracts for services or 
     for the use of facilities.
       (b) Sales within the meaning of section 3(k) of the Act 
     include the transfer of title to tangible property, and in 
     certain cases, of tangible and valuable evidences of 
     intangible property. Section 3(k) of the Act states that 
     ``sale'' or ``sell'' includes any sale, exchange, contract to 
     sell, consignment for sale, shipment for sale, or other 
     disposition.
       (c) Exempt outside sales work includes not only the sales 
     of commodities, but also ``obtaining orders or contracts for 
     services or for the use of facilities for which a 
     consideration will be paid by the client or customer.'' 
     Obtaining orders for ``the use of facilities'' includes the 
     selling of time on radio or television, the solicitation of 
     advertising for newspapers and other periodicals, and the 
     solicitation of freight for railroads and other 
     transportation agencies.
       (d) The word ``services'' extends the outside sales 
     exemption to employees who sell or take orders for a service, 
     which may be performed for the customer by someone other than 
     the person taking the order.
       Sec. 541.502  Away from employer's place of business. An 
     outside sales employee must be customarily and regularly 
     engaged ``away from the employer's place or places of 
     business.'' The outside sales employee is an employee who 
     makes sales at the customer's place of business or, if 
     selling door-to-door, at the customer's home. Outside sales 
     does not include sales made by mail, telephone or the 
     Internet unless such contact is used merely as an adjunct to 
     personal calls. Thus, any fixed site, whether home or office, 
     used by a salesperson as a headquarters or for telephonic 
     solicitation of sales is considered one of the employer's 
     places of business, even though the employer is not in any 
     formal sense the owner or tenant of the property. However, an 
     outside sales employee does not lose the exemption by 
     displaying samples in hotel sample rooms during trips from 
     city to city; these sample rooms should not be considered as 
     the employer's places of business. Similarly, an outside 
     sales employee does not lose the exemption by displaying the 
     employer's products at a trade show. If selling actually 
     occurs, rather than just sales promotion, trade shows of 
     short duration (i.e., one or two weeks) should not be 
     considered as the employer's place of business.
       Sec. 541.503  Promotion work.
       (a) Promotion work is one type of activity often performed 
     by persons who make sales, which may or may not be exempt 
     outside sales work, depending upon the circumstances under 
     which it is performed. Promotional work that is actually 
     performed incidental to and in conjunction with an employee's 
     own outside sales or solicitations is exempt work. On the 
     other hand, promotional work that is incidental to sales 
     made, or to be made, by someone else is not exempt outside 
     sales work. An employee who does not satisfy the requirements 
     of this subpart may still qualify as an exempt employee under 
     other subparts of this rule.
       (b) A manufacturer's representative, for example, may 
     perform various types of promotional activities such as 
     putting up displays and posters, removing damaged or spoiled 
     stock from the merchant's shelves or rearranging the 
     merchandise. Such an employee can be considered an exempt 
     outside sales employee if the employee's primary duty is 
     making sales or contracts. Promotion activities directed 
     toward consummation of the employee's own sales are exempt. 
     Promotional activities designed to stimulate sales that will 
     be made by someone else are not exempt outside sales work.
       (c) Another example is a company representative who visits 
     chain stores, arranges the merchandise on shelves, 
     replenishes stock by replacing old with new merchandise, sets 
     up displays and consults with the store manager when 
     inventory runs low, but does not obtain a commitment for 
     additional purchases. The arrangement of merchandise on 
     the shelves or the replenishing of stock is not exempt 
     work unless it is incidental to and in conjunction with 
     the employee's own outside sales. Because the employee in 
     this instance does not consummate the sale nor direct 
     efforts toward the consummation of a sale, the work is not 
     exempt outside sales work.
       Sec. 541.504  Drivers who sell.
       (a) Drivers who deliver products and also sell such 
     products may qualify as exempt outside sales employees only 
     if the employee has a primary duty of making sales. In 
     determining the primary duty of drivers who sell, work 
     performed incidental to and in conjunction with the 
     employee's own outside sales or solicitations, including 
     loading, driving or delivering products, shall be regarded as 
     exempt outside sales work.
       (b) Several factors should be considered in determining if 
     a driver has a primary duty of making sales, including, but 
     not limited to: a comparison of the driver's duties with 
     those of other employees engaged as truck drivers and as 
     salespersons; possession of a selling or solicitor's license 
     when such license is required by law or ordinances; presence 
     or absence of customary or contractual arrangements 
     concerning amounts of products to be delivered; description 
     of the employee's occupation in collective bargaining 
     agreements; the employer's specifications as to 
     qualifications for hiring; sales training; attendance at 
     sales conferences; method of payment; and proportion of 
     earnings directly attributable to sales.
       (c) Drivers who may qualify as exempt outside sales 
     employees include: (1) A driver who provides the only sales 
     contact between the employer and the customers visited, who 
     calls on customers and takes orders for products, who 
     delivers products from stock in the employee's vehicle or 
     procures and delivers the product to the customer on a later 
     trip, and who receives compensation commensurate with the 
     volume of products sold. (2) A driver who obtains or solicits 
     orders for the employer's products from persons who have 
     authority to commit the customer for purchases. (3) A driver 
     who calls on new prospects for customers along the employee's 
     route and attempts to convince them of the desirability of 
     accepting regular delivery of goods. (4) A driver who calls 
     on established customers along the route and persuades 
     regular customers to accept delivery of increased amounts of 
     goods or of new products, even though the initial sale or 
     agreement for delivery was made by someone else.
       (d) Drivers who generally would not qualify as exempt 
     outside sales employees include: (1) A route driver whose 
     primary duty is to transport products sold by the employer 
     through vending machines and to keep such machines stocked, 
     in good operating condition, and in good locations.
       (2) A driver who often calls on established customers day 
     after day or week after week, delivering a quantity of the 
     employer's products at each call when the sale was not 
     significantly affected by solicitations of the customer by 
     the delivering driver or the amount of the sale is determined 
     by the volume of the customer's sales since the previous 
     delivery. (3) A driver primarily engaged in making deliveries 
     to customers and performing activities intended to promote 
     sales by customers (including placing point-of-sale and other 
     advertising materials, price stamping commodities, arranging 
     merchandise on shelves, in coolers or in cabinets, rotating 
     stock according to date, and cleaning and otherwise servicing 
     display cases), unless such work is in furtherance of the 
     driver's own sales efforts.

[[Page H7858]]

                     Subpart G--Salary Requirements

       Sec. 541.600  Amount of salary required.
       (a) To qualify as an exempt executive, administrative or 
     professional employee under section 13(a)(1) of the Act, an 
     employee must be compensated on a salary basis at a rate of 
     not less than $455 per week (or $380 per week, if employed in 
     American Samoa by employers other than the Federal 
     Government), exclusive of board, lodging or other facilities. 
     Administrative and professional employees may also be paid on 
     a fee basis, as defined in Sec. 541.605.
       (b) The $455 a week may be translated into equivalent 
     amounts for periods longer than one week. The requirement 
     will be met if the employee is compensated biweekly on a 
     salary basis of $910, semimonthly on a salary basis of 
     $985.83, or monthly on a salary basis of $1,971.66. However, 
     the shortest period of payment that will meet this 
     compensation requirement is one week.
       (c) In the case of academic administrative employees, the 
     compensation requirement also may be met by compensation on a 
     salary basis at a rate at least equal to the entrance salary 
     for teachers in the educational establishment by which the 
     employee is employed, as provided in Sec. 541. 204(a)(1).
       (d) In the case of computer employees, the compensation 
     requirement also may be met by compensation on an hourly 
     basis at a rate not less than $27.63 an hour, as provided in 
     Sec. 541. 400(b).
       (e) In the case of professional employees, the compensation 
     requirements in this section shall not apply to employees 
     engaged as teachers (see Sec. 541.303); employees who hold a 
     valid license or certificate permitting the practice of law 
     or medicine or any of their branches and are actually engaged 
     in the practice thereof (see Sec. 541.304); or to employees 
     who hold the requisite academic degree for the general 
     practice of medicine and are engaged in an internship or 
     resident program pursuant to the practice of the profession 
     (see Sec. 541.304). In the case of medical occupations, the 
     exception from the salary or fee requirement does not apply 
     to pharmacists, nurses, therapists, technologists, 
     sanitarians, dietitians, social workers, psychologists, 
     psychometrists, or other professions which service the 
     medical profession.
       Sec. 541.601  Highly compensated employees.
       (a) An employee with total annual compensation of at least 
     $100,000 is deemed exempt under section 13(a)(1) of the Act 
     if the employee customarily and regularly performs any one or 
     more of the exempt duties or responsibilities of an 
     executive, administrative or professional employee identified 
     in subparts B, C or D of this part.
       (b) (1) ``Total annual compensation'' must include at least 
     $455 per week paid on a salary or fee basis. Total annual 
     compensation may also include commissions, nondiscretionary 
     bonuses and other nondiscretionary compensation earned during 
     a 52-week period. Total annual compensation does not include 
     board, lodging and other facilities as defined in Sec. 
     541.606, and does not include payments for medical insurance, 
     payments for life insurance, contributions to retirement 
     plans and the cost of other fringe benefits. (2) If an 
     employee's total annual compensation does not total at least 
     the minimum amount established in paragraph (a) of this 
     section by the last pay period of the 52-week period, the 
     employer may, during the last pay period or within one month 
     after the end of the 52-week period, make one final payment 
     sufficient to achieve the required level. For example, an 
     employee may earn $80,000 in base salary, and the employer 
     may anticipate based upon past sales that the employee 
     also will earn $20,000 in commissions. However, due to 
     poor sales in the final quarter of the year, the employee 
     actually only earns $10,000 in commissions. In this 
     situation, the employer may within one month after the end 
     of the year make a payment of at least $10,000 to the 
     employee. Any such final payment made after the end of the 
     52-week period may count only toward the prior year's 
     total annual compensation and not toward the total annual 
     compensation in the year it was paid. If the employer 
     fails to make such a payment, the employee does not 
     qualify as a highly compensated employee, but may still 
     qualify as exempt under subparts B, C or D of this part. 
     (3) An employee who does not work a full year for the 
     employer, either because the employee is newly hired after 
     the beginning of the year or ends the employment before 
     the end of the year, may qualify for exemption under this 
     section if the employee receives a pro rata portion of the 
     minimum amount established in paragraph (a) of this 
     section, based upon the number of weeks that the employee 
     will be or has been employed. An employer may make one 
     final payment as under paragraph (b)(2) of this section 
     within one month after the end of employment. (4) The 
     employer may utilize any 52-week period as the year, such 
     as a calendar year, a fiscal year, or an anniversary of 
     hire year. If the employer does not identify some other 
     year period in advance, the calendar year will apply.
       (c) A high level of compensation is a strong indicator of 
     an employee's exempt status, thus eliminating the need for a 
     detailed analysis of the employee's job duties. Thus, a 
     highly compensated employee will qualify for exemption if the 
     employee customarily and regularly performs any one or more 
     of the exempt duties or responsibilities of an executive, 
     administrative or professional employee identified in 
     subparts B, C or D of this part. An employee may qualify as a 
     highly compensated executive employee, for example, if the 
     employee customarily and regularly directs the work of two or 
     more other employees, even though the employee does not meet 
     all of the other requirements for the executive exemption 
     under Sec. 541.100.
       (d) This section applies only to employees whose primary 
     duty includes performing office or non-manual work. Thus, for 
     example, non-management production-line workers and non 
     management employees in maintenance, construction and similar 
     occupations such as carpenters, electricians, mechanics, 
     plumbers, iron workers, craftsmen, operating engineers, 
     longshoremen, construction workers, laborers and other 
     employees who perform work involving repetitive operations 
     with their hands, physical skill and energy are not exempt 
     under this section no matter how highly paid they might be.
       Sec. 541.602  Salary basis.
       (a) General rule. An employee will be considered to be paid 
     on a ``salary basis'' within the meaning of these regulations 
     if the employee regularly receives each pay period on a 
     weekly, or less frequent basis, a predetermined amount 
     constituting all or part of the employee's compensation, 
     which amount is not subject to reduction because of 
     variations in the quality or quantity of the work performed. 
     Subject to the exceptions provided in paragraph (b) of this 
     section, an exempt employee must receive the full salary for 
     any week in which the employee performs any work without 
     regard to the number of days or hours worked. Exempt 
     employees need not be paid for any workweek in which they 
     perform no work. An employee is not paid on a salary basis if 
     deductions from the employee's predetermined compensation are 
     made for absences occasioned by the employer or by the 
     operating requirements of the business. If the employee is 
     ready, willing and able to work, deductions may not be made 
     for time when work is not available.
       (b) Exceptions. The prohibition against deductions from pay 
     in the salary basis requirement is subject to the following 
     exceptions: (1) Deductions from pay may be made when an 
     exempt employee is absent from work for one or more full days 
     for personal reasons, other than sickness or disability. 
     Thus, if an employee is absent for two full days to handle 
     personal affairs, the employee's salaried status will not be 
     affected if deductions are made from the salary for two full 
     day absences. However, if an exempt employee is absent for 
     one and a half days for personal reasons, the employer can 
     deduct only for the one full-day absence. (2) Deductions from 
     pay may be made for absences of one or more full days 
     occasioned by sickness or disability (including work-related 
     accidents) if the deduction is made in accordance with a bona 
     fide plan, policy or practice of providing compensation for 
     loss of salary occasioned by such sickness or disability. The 
     employer is not required to pay any portion of the employee's 
     salary for full-day absences for which the employee receives 
     compensation under the plan, policy or practice. Deductions 
     for such full-day absences also may be made before the 
     employee has qualified under the plan, policy or practice, 
     and after the employee has exhausted the leave allowance 
     thereunder. Thus, for example, if an employer maintains a 
     short-term disability insurance plan providing salary 
     replacement for 12 weeks starting on the fourth day of 
     absence, the employer may make deductions from pay for the 
     three days of absence before the employee qualifies for 
     benefits under the plan; for the twelve weeks in which the 
     employee receives salary replacement benefits under the plan; 
     and for absences after the employee has exhausted the 12 
     weeks of salary replacement benefits. Similarly, an employer 
     may make deductions from pay for absences of one or more full 
     days if salary replacement benefits are provided under a 
     State disability insurance law or under a State workers' 
     compensation law. (3) While an employer cannot make 
     deductions from pay for absences of an exempt employee 
     occasioned by jury duty, attendance as a witness or temporary 
     military leave, the employer can offset any amounts received 
     by an employee as jury fees, witness fees or military pay for 
     a particular week against the salary due for that particular 
     week without loss of the exemption. (4) Deductions from pay 
     of exempt employees may be made for penalties imposed in good 
     faith for infractions of safety rules of major significance. 
     Safety rules of major significance include those relating to 
     the prevention of serious danger in the workplace or to other 
     employees, such as rules prohibiting smoking in explosive 
     plants, oil refineries and coal mines. (5) Deductions from 
     pay of exempt employees may be made for unpaid disciplinary 
     suspensions of one or more full days imposed in good faith 
     for infractions of workplace conduct rules. Such suspensions 
     must be imposed pursuant to a written policy applicable to 
     all employees. Thus, for example, an employer may suspend an 
     exempt employee without pay for three days for violating a 
     generally applicable written policy prohibiting sexual 
     harassment. Similarly, an employer may suspend an exempt 
     employee without pay for twelve days for violating a 
     generally applicable written policy prohibiting workplace 
     violence. (6) An employer is not required to pay the full 
     salary in the initial or terminal week of employment. Rather, 
     an employer may pay a proportionate part of an employee's 
     full salary for the time actually worked in the first and 
     last week of employment. In such weeks, the payment of

[[Page H7859]]

     an hourly or daily equivalent of the employee's full salary 
     for the time actually worked will meet the requirement. 
     However, employees are not paid on a salary basis within the 
     meaning of these regulations if they are employed 
     occasionally for a few days, and the employer pays them a 
     proportionate part of the weekly salary when so employed. (7) 
     An employer is not required to pay the full salary for weeks 
     in which an exempt employee takes unpaid leave under the 
     Family and Medical Leave Act. Rather, when an exempt employee 
     takes unpaid leave under the Family and Medical Leave Act, 
     an employer may pay a proportionate part of the full 
     salary for time actually worked. For example, if an 
     employee who normally works 40 hours per week uses four 
     hours of unpaid leave under the Family and Medical Leave 
     Act, the employer could deduct 10 percent of the 
     employee's normal salary that week.
       (c) When calculating the amount of a deduction from pay 
     allowed under paragraph (b) of this section, the employer may 
     use the hourly or daily equivalent of the employee's full 
     weekly salary or any other amount proportional to the time 
     actually missed by the employee. A deduction from pay as a 
     penalty for violations of major safety rules under paragraph 
     (b)(4) of this section may be made in any amount.
       Sec. 541.603  Effect of improper deductions from salary.
       (a) An employer who makes improper deductions from salary 
     shall lose the exemption if the facts demonstrate that the 
     employer did not intend to pay employees on a salary basis. 
     An actual practice of making improper deductions demonstrates 
     that the employer did not intend to pay employees on a salary 
     basis. The factors to consider when determining whether an 
     employer has an actual practice of making improper deductions 
     include, but are not limited to: the number of improper 
     deductions, particularly as compared to the number of 
     employee infractions warranting discipline; the time period 
     during which the employer made improper deductions; the 
     number and geographic location of employees whose salary was 
     improperly reduced; the number and geographic location of 
     managers responsible for taking the improper deductions; and 
     whether the employer has a clearly communicated policy 
     permitting or prohibiting improper deductions.
       (b) If the facts demonstrate that the employer has an 
     actual practice of making improper deductions, the exemption 
     is lost during the time period in which the improper 
     deductions were made for employees in the same job 
     classification working for the same managers responsible for 
     the actual improper deductions. Employees in different job 
     classifications or who work for different managers do not 
     lose their status as exempt employees. Thus, for example, if 
     a manager at a company facility routinely docks the pay of 
     engineers at that facility for partial-day personal absences, 
     then all engineers at that facility whose pay could have been 
     improperly docked by the manager would lose the exemption; 
     engineers at other facilities or working for other managers, 
     however, would remain exempt.
       (c) Improper deductions that are either isolated or 
     inadvertent will not result in loss of the exemption for any 
     employees subject to such improper deductions, if the 
     employer reimburses the employees for such improper 
     deductions.
       (d) If an employer has a clearly communicated policy that 
     prohibits the improper pay deductions specified in Sec. 
     541.602(a) and includes a complaint mechanism, reimburses 
     employees for any improper deductions and makes a good faith 
     commitment to comply in the future, such employer will not 
     lose the exemption for any employees unless the employer 
     willfully violates the policy by continuing to make improper 
     deductions after receiving employee complaints. If an 
     employer fails to reimburse employees for any improper 
     deductions or continues to make improper deductions after 
     receiving employee complaints, the exemption is lost during 
     the time period in which the improper deductions were made 
     for employees in the same job classification working for the 
     same managers responsible for the actual improper deductions. 
     The best evidence of a clearly communicated policy is a 
     written policy that was distributed to employees prior to the 
     improper pay deductions by, for example, providing a copy of 
     the policy to employees at the time of hire, publishing the 
     policy in an employee handbook or publishing the policy on 
     the employer's Intranet.
       (e) This section shall not be construed in an unduly 
     technical manner so as to defeat the exemption.
       Sec. 541.604  Minimum guarantee plus extras.
       (a) An employer may provide an exempt employee with 
     additional compensation without losing the exemption or 
     violating the salary basis requirement, if the employment 
     arrangement also includes a guarantee of at least the minimum 
     weekly-required amount paid on a salary basis. Thus, for 
     example, an exempt employee guaranteed at least $455 each 
     week paid on a salary basis may also receive additional 
     compensation of a one percent commission on sales. An exempt 
     employee also may receive a percentage of the sales or 
     profits of the employer if the employment arrangement also 
     includes a guarantee of at least $455 each week paid on a 
     salary basis. Similarly, the exemption is not lost if an 
     exempt employee who is guaranteed at least $455 each week 
     paid on a salary basis also receives additional compensation 
     based on hours worked for work beyond the normal workweek. 
     Such additional compensation may be paid on any basis (e.g., 
     flat sum, bonus payment, straight-time hourly amount, time 
     and one-half or any other basis), and may include paid time 
     off.
       (b) An exempt employee's earnings may be computed on an 
     hourly, a daily or a shift basis, without losing the 
     exemption or violating the salary basis requirement, if the 
     employment arrangement also includes a guarantee of at least 
     the minimum weekly required amount paid on a salary basis 
     regardless of the number of hours, days or shifts worked, and 
     a reasonable relationship exists between the guaranteed 
     amount and the amount actually earned. The reasonable 
     relationship test will be met if the weekly guarantee is 
     roughly equivalent to the employee's usual earnings at the 
     assigned hourly, daily or shift rate for the employee's 
     normal scheduled workweek. Thus, for example, an exempt 
     employee guaranteed compensation of at least $500 for any 
     week in which the employee performs any work, and who 
     normally works four or five shifts each week, may be paid 
     $150 per shift without violating the salary basis 
     requirement. The reasonable relationship requirement applies 
     only if the employee's pay is computed on an hourly, daily or 
     shift basis. It does not apply, for example, to an exempt 
     store manager paid a guaranteed salary of $650 per week who 
     also receives a commission of one-half percent of all sales 
     in the store or five percent of the store's profits, which in 
     some weeks may total as much as, or even more than, the 
     guaranteed salary.
       Sec. 541.605  Fee basis.
       (a) Administrative and professional employees may be paid 
     on a fee basis, rather than on a salary basis. An employee 
     will be considered to be paid on a ``fee basis'' within the 
     meaning of these regulations if the employee is paid an 
     agreed sum for a single job regardless of the time required 
     for its completion. These payments resemble piecework 
     payments with the important distinction that generally a 
     ``fee'' is paid for the kind of job that is unique rather 
     than for a series of jobs repeated an indefinite number of 
     times and for which payment on an identical basis is made 
     over and over again. Payments based on the number of hours or 
     days worked and not on the accomplishment of a given single 
     task are not considered payments on a fee basis.
       (b) To determine whether the fee payment meets the minimum 
     amount of salary required for exemption under these 
     regulations, the amount paid to the employee will be tested 
     by determining the time worked on the job and whether the fee 
     payment is at a rate that would amount to at least $455 
     per week if the employee worked 40 hours. Thus, an artist 
     paid $250 for a picture that took 20 hours to complete 
     meets the minimum salary requirement for exemption since 
     earnings at this rate would yield the artist $500 if 40 
     hours were worked.
       Sec. 541.606  Board, lodging or other facilities.
       (a) To qualify for exemption under section 13(a)(1) of the 
     Act, an employee must earn the minimum salary amount set 
     forth in Sec. 541.600, ``exclusive of board, lodging or other 
     facilities.'' The phrase ``exclusive of board, lodging or 
     other facilities'' means ``free and clear'' or independent of 
     any claimed credit for non-cash items of value that an 
     employer may provide to an employee. Thus, the costs incurred 
     by an employer to provide an employee with board, lodging or 
     other facilities may not count towards the minimum salary 
     amount required for exemption under this part 541. Such 
     separate transactions are not prohibited between employers 
     and their exempt employees, but the costs to employers 
     associated with such transactions may not be considered when 
     determining if an employee has received the full required 
     minimum salary payment.
       (b) Regulations defining what constitutes ``board, lodging, 
     or other facilities'' are contained in 29 CFR part 531. As 
     described in 29 CFR 531.32, the term ``other facilities'' 
     refers to items similar to board and lodging, such as meals 
     furnished at company restaurants or cafeterias or by 
     hospitals, hotels, or restaurants to their employees; meals, 
     dormitory rooms, and tuition furnished by a college to its 
     student employees; merchandise furnished at company stores or 
     commissaries, including articles of food, clothing, and 
     household effects; housing furnished for dwelling purposes; 
     and transportation furnished to employees for ordinary 
     commuting between their homes and work. [[Good cause for the 
     inclusion of subsection (b): The regulations referenced in 
     this paragraph at 29 CFR 531.29 are not substantive 
     regulations, but are ``interpretive'' regulations which were 
     not incorporated in Part 531 of the CAA regulations adopted 
     in 1996. However, the Board of Directors has determined that, 
     since these particular interpretive regulations are 
     incorporated by reference in the new substantive regulations, 
     employing offices and employees may reference these 
     particular interpretive regulations as part of the new 
     substantive regulations as proposed here.]]

          Subpart H--Definitions and Miscellaneous Provisions

       Sec. 541.700  Primary duty.
       (a) To qualify for exemption under this part, an employee's 
     ``primary duty'' must be the performance of exempt work. The 
     term ``primary duty'' means the principal, main, major or 
     most important duty that the employee performs. Determination 
     of an employee's primary duty must be based on all

[[Page H7860]]

     the facts in a particular case, with the major emphasis on 
     the character of the employee's job as a whole. Factors to 
     consider when determining the primary duty of an employee 
     include, but are not limited to, the relative importance of 
     the exempt duties as compared with other types of duties; the 
     amount of time spent performing exempt work; the employee's 
     relative freedom from direct supervision; and the 
     relationship between the employee's salary and the wages paid 
     to other employees for the kind of nonexempt work performed 
     by the employee.
       (b) The amount of time spent performing exempt work can be 
     a useful guide in determining whether exempt work is the 
     primary duty of an employee. Thus, employees who spend more 
     than 50 percent of their time performing exempt work will 
     generally satisfy the primary duty requirement. Time alone, 
     however, is not the sole test, and nothing in this section 
     requires that exempt employees spend more than 50 percent of 
     their time performing exempt work. Employees who do not spend 
     more than 50 percent of their time performing exempt duties 
     may nonetheless meet the primary duty requirement if the 
     other factors support such a conclusion.
       (c) Thus, for example, assistant managers in a retail 
     establishment who perform exempt executive work such as 
     supervising and directing the work of other employees, 
     ordering merchandise, managing the budget and authorizing 
     payment of bills may have management as their primary duty 
     even if the assistant managers spend more than 50 percent of 
     the time performing nonexempt work such as running the cash 
     register. However, if such assistant managers are closely 
     supervised and earn little more than the nonexempt employees, 
     the assistant managers generally would not satisfy the 
     primary duty requirement.
       Sec. 541.701  Customarily and regularly. The phrase 
     ``customarily and regularly'' means a frequency that must be 
     greater than occasional but which, of course, may be less 
     than constant. Tasks or work performed ``customarily and 
     regularly'' includes work normally and recurrently performed 
     every workweek; it does not include isolated or one-time 
     tasks.
       Sec. 541.702  Exempt and nonexempt work. The term ``exempt 
     work'' means all work described in Sec. 541.100, 541.101, 
     541.200, 541.300, 541.301, 541.302, 541.303, 541.304, 541.400 
     and 541.500, and the activities directly and closely related 
     to such work. All other work is considered ``nonexempt.''
       Sec. 541.703  Directly and closely related.
       (a) Work that is ``directly and closely related'' to the 
     performance of exempt work is also considered exempt work. 
     The phrase ``directly and closely related'' means tasks that 
     are related to exempt duties and that contribute to or 
     facilitate performance of exempt work. Thus, ``directly and 
     closely related'' work may include physical tasks and menial 
     tasks that arise out of exempt duties, and the routine work 
     without which the exempt employee's exempt work cannot be 
     performed properly. Work ``directly and closely related'' to 
     the performance of exempt duties may also include 
     recordkeeping; monitoring and adjusting machinery; taking 
     notes; using the computer to create documents or 
     presentations; opening the mail for the purpose of reading it 
     and making decisions; and using a photocopier or fax machine. 
     Work is not ``directly and closely related'' if the work is 
     remotely related or completely unrelated to exempt duties.
       (b) The following examples further illustrate the type of 
     work that is and is not normally considered as directly and 
     closely related to exempt work: (1) Keeping time, production 
     or sales records for subordinates is work directly and 
     closely related to an exempt executive's function of managing 
     a department and supervising employees. (2) The distribution 
     of materials, merchandise or supplies to maintain control of 
     the flow of and expenditures for such items is directly and 
     closely related to the performance of exempt duties. (3) A 
     supervisor who spot checks and examines the work of 
     subordinates to determine whether they are performing their 
     duties properly, and whether the product is satisfactory, is 
     performing work which is directly and closely related to 
     managerial and supervisory functions, so long as the checking 
     is distinguishable from the work ordinarily performed by a 
     nonexempt inspector. (4) A supervisor who sets up a machine 
     may be engaged in exempt work, depending upon the nature 
     of the industry and the operation. In some cases the setup 
     work, or adjustment of the machine for a particular job, 
     is typically performed by the same employees who operate 
     the machine. Such setup work is part of the production 
     operation and is not exempt. In other cases, the setting 
     up of the work is a highly skilled operation which the 
     ordinary production worker or machine tender typically 
     does not perform. In large plants, non-supervisors may 
     perform such work. However, particularly in small plants, 
     such work may be a regular duty of the executive and is 
     directly and closely related to the executive's 
     responsibility for the work performance of subordinates 
     and for the adequacy of the final product. Under such 
     circumstances, it is exempt work. (5) A department manager 
     in a retail or service establishment who walks about the 
     sales floor observing the work of sales personnel under 
     the employee's supervision to determine the effectiveness 
     of their sales techniques, checks on the quality of 
     customer service being given, or observes customer 
     preferences is performing work which is directly and 
     closely related to managerial and supervisory functions. 
     (6) A business consultant may take extensive notes 
     recording the flow of work and materials through the 
     office or plant of the client; after returning to the 
     office of the employer, the consultant may personally use 
     the computer to type a report and create a proposed table 
     of organization. Standing alone, or separated from the 
     primary duty, such note-taking and typing would be routine 
     in nature. However, because this work is necessary for 
     analyzing the data and making recommendations, the work is 
     directly and closely related to exempt work. While it is 
     possible to assign note-taking and typing to nonexempt 
     employees, and in fact it is frequently the practice to do 
     so, delegating such routine tasks is not required as a 
     condition of exemption. (7) A credit manager who makes and 
     administers the credit policy of the employer, establishes 
     credit limits for customers, authorizes the shipment of 
     orders on credit, and makes decisions on whether to exceed 
     credit limits would be performing work exempt under Sec. 
     541.200. Work that is directly and closely related to 
     these exempt duties may include checking the status of 
     accounts to determine whether the credit limit would be 
     exceeded by the shipment of a new order, removing credit 
     reports from the files for analysis, and writing letters 
     giving credit data and experience to other employers or 
     credit agencies. (8) A traffic manager in charge of 
     planning a company's transportation, including the most 
     economical and quickest routes for shipping merchandise to 
     and from the plant, contracting for common-carrier and 
     other transportation facilities, negotiating with carriers 
     for adjustments for damages to merchandise, and making the 
     necessary rearrangements resulting from delays, damages or 
     irregularities in transit, is performing exempt work. If 
     the employee also spends part of the day taking telephone 
     orders for local deliveries, such order-taking is a 
     routine function and is not directly and closely related 
     to the exempt work. (9) An example of work directly and 
     closely related to exempt professional duties is a chemist 
     performing menial tasks such as cleaning a test tube in 
     the middle of an original experiment, even though such 
     menial tasks can be assigned to laboratory assistants. 
     (10) A teacher performs work directly and closely related 
     to exempt duties when, while taking students on a field 
     trip, the teacher drives a school van or monitors the 
     students' behavior in a restaurant.
       Sec. 541.704  Use of manuals. The use of manuals, 
     guidelines or other established procedures containing or 
     relating to highly technical, scientific, legal, financial or 
     other similarly complex matters that can be understood or 
     interpreted only by those with advanced or specialized 
     knowledge or skills does not preclude exemption under section 
     13(a)(1) of the Act or the regulations in this part. Such 
     manuals and procedures provide guidance in addressing 
     difficult or novel circumstances and thus use of such 
     reference material would not affect an employee's exempt 
     status. The section 13(a)(1) exemptions are not available, 
     however, for employees who simply apply well-established 
     techniques or procedures described in manuals or other 
     sources within closely prescribed limits to determine the 
     correct response to an inquiry or set of circumstances.
       Sec. 541.705  Trainees. The executive, administrative, 
     professional, outside sales and computer employee exemptions 
     do not apply to employees training for employment in an 
     executive, administrative, professional, outside sales or 
     computer employee capacity who are not actually performing 
     the duties of an executive, administrative, professional, 
     outside sales or computer employee.
       Sec. 541.706  Emergencies.
       (a) An exempt employee will not lose the exemption by 
     performing work of a normally nonexempt nature because of the 
     existence of an emergency. Thus, when emergencies arise that 
     threaten the safety of employees, a cessation of operations 
     or serious damage to the employer's property, any work 
     performed in an effort to prevent such results is considered 
     exempt work.
       (b) An ``emergency'' does not include occurrences that are 
     not beyond control or for which the employer can reasonably 
     provide in the normal course of business. Emergencies 
     generally occur only rarely, and are events that the employer 
     cannot reasonably anticipate.
       (c) The following examples illustrate the distinction 
     between emergency work considered exempt work and routine 
     work that is not exempt work: (1) A mine superintendent who 
     pitches in after an explosion and digs out workers who are 
     trapped in the mine is still a bona fide executive. (2) 
     Assisting nonexempt employees with their work during periods 
     of heavy workload or to handle rush orders is not exempt 
     work. (3) Replacing a nonexempt employee during the first day 
     or partial day of an illness may be considered exempt 
     emergency work depending on factors such as the size of the 
     establishment and of the executive's department, the nature 
     of the industry, the consequences that would flow from the 
     failure to replace the ailing employee immediately, and the 
     feasibility of filling the employee's place promptly. (4) 
     Regular repair and cleaning of equipment is not emergency 
     work, even when necessary to prevent fire or explosion; 
     however, repairing equipment may be emergency work if the 
     breakdown of or damage to the equipment was caused by 
     accident or carelessness that the employer could not 
     reasonably anticipate.
       Sec. 541.707  Occasional tasks. Occasional, infrequently 
     recurring tasks that cannot

[[Page H7861]]

     practicably be performed by nonexempt employees, but are the 
     means for an exempt employee to properly carry out exempt 
     functions and responsibilities, are considered exempt work. 
     The following factors should be considered in determining 
     whether such work is exempt work: Whether the same work is 
     performed by any of the exempt employee's subordinates; 
     practicability of delegating the work to a nonexempt 
     employee; whether the exempt employee performs the task 
     frequently or occasionally; and existence of an industry 
     practice for the exempt employee to perform the task.
       Sec. 541.708  Combination exemptions. Employees who perform 
     a combination of exempt duties as set forth in the 
     regulations in this part for executive, administrative, 
     professional, outside sales and computer employees may 
     qualify for exemption. Thus, for example, an employee 
     whose primary duty involves a combination of exempt 
     administrative and exempt executive work may qualify for 
     exemption. In other words, work that is exempt under one 
     section of this part will not defeat the exemption under 
     any other section.
       Sec. 541.709 Motion picture producing industry. The 
     requirement that the employee be paid ``on a salary basis'' 
     does not apply to an employee in the motion picture producing 
     industry who is compensated at a base rate of at least $695 a 
     week (exclusive of board, lodging, or other facilities). 
     Thus, an employee in this industry who is otherwise exempt 
     under subparts B, C or D of this part, and who is employed at 
     a base rate of at least $695 a week is exempt if paid a 
     proportionate amount (based on a week of not more than 6 
     days) for any week in which the employee does not work a full 
     workweek for any reason. Moreover, an otherwise exempt 
     employee in this industry qualifies for exemption if the 
     employee is employed at a daily rate under the following 
     circumstances: (a) The employee is in a job category for 
     which a weekly base rate is not provided and the daily base 
     rate would yield at least $695 if 6 days were worked; or (b) 
     The employee is in a job category having a weekly base rate 
     of at least $695 and the daily base rate is at least one-
     sixth of such weekly base rate.
       Sec. 541.710  Employees of Public Agencies. (a) An employee 
     of a public agency who otherwise meets the salary basis 
     requirements of section 541.602 shall not be disqualified 
     from exemption under sections 541.100, 541.200, 541.300 or 
     541.400 on the basis that such employee is paid according to 
     a pay system established by statute, ordinance, or 
     regulation, or by a policy or practice established pursuant 
     to principles of public accountability, under which the 
     employee accrues personal leave and sick leave and which 
     requires the public agency employee's pay to be reduced or 
     such employee to be placed on leave without pay for absences 
     for personal reasons or because of illness or injury of less 
     than one work-day when accrued leave is not used by an 
     employee because: (1) Permission for its use has not been 
     sought or has been sought or denied; (2) Accrued leave has 
     been exhausted; (3) The employee chooses to use leave without 
     pay. (b) Deductions from the pay of an employee of a public 
     agency for absences due to a budget required furlough shall 
     not disqualify the employee from being paid on a salary basis 
     except on the workweek in which the furlough occurs and for 
     which the employee's pay is accordingly reduced.

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