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<br />20 | 2025 Arthur J. Gallagher & Co <br />Appendix 2: FLSA Compliance Methodology <br /> <br />Our 7-Point FLSA Compliance Methodology provides a structured, defensible approach to determining the appropriate exemption <br />status of each position within your organization. This systematic framework goes beyond basic salary thresholds to ensure proper <br />classification according to the most current Department of Labor regulations and case law interpretations. <br /> <br />1. Salary Basis Assessment <br />• Evaluation of compensation structure against current FLSA minimum salary requirements <br />• Analysis of pay practices for compliance with salary basis test requirements <br />• Review of compensation delivery methods and frequency <br />• Assessment of permissible and impermissible deductions <br />• Identification of salary basis vulnerabilities and remediation recommendations <br /> <br />2. Primary Duty Analysis <br />• Quantitative time allocation analysis across job functions <br />• Relative importance assessment of exempt vs. non-exempt functions <br />• Freedom from direct supervision evaluation <br />• Comparative wage differential analysis between positions <br />• Documentation of primary duty determination rationale <br /> <br />3. Discretion & Independent Judgment Evaluation <br />• Assessment against standardized regulatory factors for independent judgment <br />• Analysis of authority to formulate, affect, interpret, or implement policies/practices <br />• Documentation of decision-making authority and constraints <br />• Evaluation of consequences of decisions and recommendations <br />• Comparison against DOL examples and precedents for similar positions as appropriate <br /> <br />4. Exemption-Specific Testing <br />• Targeted assessment against relevant exemption criteria: <br />‒ Executive exemption: supervision, hiring/firing authority analysis <br />‒ Administrative exemption: administrative vs. production work distinction <br />‒ Professional exemption: specialized education/expertise requirements <br />‒ Computer professional: systems analysis and programming function review <br />‒ Outside sales: customer location and sales activity documentation <br />• Application of relevant regulatory interpretations and case law precedents <br /> <br />5. Industry-Specific Considerations <br />• Application of industry-specific exemptions and requirements <br />• Analysis of specialized rules for educational institutions, government entities, healthcare, etc. <br />• Review of collective bargaining implications, if applicable <br />• Assessment of state-specific requirements that exceed federal standards <br />• Documentation of industry-specific compliance rationale <br /> <br />6. Documentation Alignment <br />• Job description language assessment for exemption supportability <br />• Identification of documentation vulnerabilities <br />• Development of compliant descriptive language <br />• Creation of audit trail documenting exemption determination process <br />• Alignment of job documentation with actual duties performed <br /> <br />7. Risk Assessment & Mitigation Planning <br />• Comprehensive evaluation of misclassification risk by position <br />• Financial impact analysis of potential misclassification <br />• Prioritization of positions requiring classification changes <br />• Development of implementation timeline for required changes <br />• Creation of monitoring protocols for ongoing compliance <br /> <br />This methodology ensures that all exemption determinations are made systematically, consistently, and in accordance with current <br />regulatory requirements. Our approach has been validated through successful implementation with hundreds of clients and has <br />withstood scrutiny in DOL audits and legal challenges