DOL Announces Changes to "White Collar" Overtime Rules

After more than 50 years of status quo, the Department of Labor announced extensive revisions to the Fair Labor Standards Act (FLSA) that take effect August 23, 2004.   All employers should carefully review the changes to ensure their employees are properly classified.   

The FLSA mandates time-and-a-half pay for hours worked over 40 hours per week.   There are several exceptions to this general rule for those who perform certain executive, administrative, professional, computer, or outside sales duties.   The new rules are outlined below.

The following workers are eligible for overtime pay:

• "Blue collar" workers and manual laborers must be paid overtime.   Examples of such workers include carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, longshoremen, and construction workers.

• "First responders" are eligible for overtime regardless of rank or duties.   Examples of such workers include police officers, sheriffs, state troopers, police investigators or detectives, corrections officers, park rangers, firefighters, paramedics, and other emergency personnel.

• Most workers earning less than $455 per week (previously $155 per week) or $23,660 per year automatically qualify for overtime pay.   There are exceptions to the minimum salary rule for certain professionals, which are discussed below.

The following workers are exempt from overtime pay:

• At least $455 per week is paid on a salary or fee basis,

• The worker performs the duties of an executive, administrative, or professional employee (defined under the professional employee exemption rules), and

• Primary duties include performance of office or nonmanual work.

If an employer is uncertain throughout the year whether or not a worker will meet these qualifications, the regulations allow a "catch up" payment to be made as late as one month after the end of the year.

• Executive employees are exempt from overtime pay if

•  At least $455 per week is paid on a salary basis,

•  Duties include managing the business or a recognized department or subdivision of the business,

•  The employee directs the work of two or more full-time employees or their equivalent, and

•  The employee is able to hire, fire, or promote other employees, or has influence regarding such decisions, or

•  The employee owns at least 20% of the equity of the business regardless of whether the employee is paid on a salary basis.

• Administrative employees are exempt from overtime pay if

•  At least $455 per week is paid on a salary or fee basis,

•  Duties include performing office or nonmanual work, and

•  The employee exercises discretion and independent judgment regarding "significant matters.

Examples of administrative employees include those in the following departments:  insurance, accounting and finance, administrative assistants, purchasing, advertising, and human resources.

• Professional employees are exempt from overtime pay if

•  At least $455 per week is paid on a salary or fee basis,

•  The employee's job responsibilities require advanced knowledge,

•  The advanced knowledge is in a field of science or learning, and

•  Such knowledge is obtained through a prolonged course of specialized intellectual instruction.

Law, medicine, accounting, engineering, architecture, teaching, physical sciences, chemical sciences, and biological sciences are examples of fields of science or learning.

• Creative professionals are exempt from overtime pay if

•  At least $455 per week is paid on a salary or fee basis, and

•  Primary duties are to perform work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

• Computer professionals, defined as systems analysts, programmers, software engineers, and similarly skilled workers, are exempt from overtime pay if

•  At least $455 per week is paid on a salary or fee basis, or at least $27.63 per hour if paid hourly, and

•  The professional performs system or program design, development, documentation, analysis, creation, testing, or modification, among other functions specified in the regulations.

• Outside sales employees are exempt from overtime pay if

•  The employee's primary duties include making sales or obtaining orders or contracts for services or for the use of facilities, and

•  The duties are customarily and regularly performed away from the employer's place of business.

The minimum salary requirements do not apply to outside sales employees.

The regulations provide a detailed definition of "salary basis."   Generally, a worker who is regularly paid a fixed amount each pay period is paid on a "salary basis."   This amount cannot change because of the quality or quantity of work, except for certain situations related to absences from work.  

Employers should begin evaluating the overtime status of each employee under these new regulations.   If we can assist you with this process or if you have questions regarding the new rules, please call us at (865) 523-7400.