Controversial Overtime Pay Regs Issued

Last year, the U.S. Department of Labor proposed extensive revisions to the rules dealing with overtime pay exemptions. Now, after much comment and ongoing controversy, the federal government has released the final overtime pay exemption regulations. The final regs go into effect on August 23, 2004.

The new regulations modify the overtime pay exemptions. In some cases, the regs expand the number of employees who are exempt from overtime pay. In other cases, employees who were exempt from overtime pay in the past will now qualify.

Background

The Fair Labor Standards Act provides that workers are generally entitled to receive time and a half pay for all hours worked over 40 hours a week. However, the law includes some general exceptions for those who perform certain executive, administrative, professional, computer, or outside sales duties. The DOL’s regs explain who qualifies for overtime pay and who is exempt from the overtime rules.

To be “exempt,” an employee must be guaranteed a minimum weekly salary and perform certain job-related duties. The new regulations make significant changes to both requirements.

The regs clarify that job titles alone do not determine an employee’s exempt status. The status of a particular employee will depend on whether the employee’s salary and duties meet the regulatory requirements.

Automatic Eligibility

However, the regs do provide that some workers are automatically eligible for overtime pay, no matter how much they earn. These include:

• Manual laborers or other “blue collar” workers who perform repetitive work using their hands, physical skills, and energy, such as nonmanagement production-line employees and nonmanagement employees in maintenance, construction, and similar occupations.
• “First responders” who perform such duties as preventing, controlling, or extinguishing fires; rescuing fire, accident, or crime victims; con-ducting investigations or inspections for legal violations; and pursuing and apprehending suspects.
• Most workers who earn less than $455 a week, or $23,660 a year, are automatically qualified for overtime pay.

Automatic Exemption

The regulations say that highly compensated employees are generally exempt from the overtime pay rules. An employee who earns total compensation of at least $100,000 a year (pro-rated if employment is for less than a year) is highly compensated. The exemption applies if:

• The employee’s total annual compensation includes at least $455 a week ($23,660 a year) paid on a salary or fee basis, and
• The employee “customarily and regularly” performs at least one of the regulation’s exempt duties and responsibilities of an executive, an administrative, or a professional employee, and
• The employee’s primary duty includes performance of office or nonmanual work.

Exemption Categories

Whether employees with compensation between $23,660 and $100,000 are exempt or are required to receive overtime pay requires some analysis of their role in the work force. As noted earlier, the law and regulations spell out overtime pay exemptions for those who are employed as bona fide executive, administrative, professional, computer professional, and outside sales employees. Each exemption has its own set of requirements, some of which have been changed by the final regulations.

What’s Next

Employers need to review the new regulations to make sure they are treating employees properly for overtime pay purposes. Failure to properly categorize employees as exempt or nonexempt can result in awards of back overtime pay and penalties. As a result, the guidance of a professional advisor is recommended. Our firm would be happy to help you review how the new regs apply to your situation.

Keep in mind that the issuance of the final regulations has not stopped the controversy over the overtime pay rules. Almost immediately, some members of Congress began taking steps to prevent the final rules from taking effect. We’ll keep you informed of any further developments.

The information provided in the newsletter has been obtained from sources believed to be reliable but its accuracy is not guaranteed.