New Federal Overtime Regulations Offer Some Clarity to Business Owners

By Molly Kurt

Following significant public debate and controversy, the U.S. Department of Labor issued its final and somewhat scaled-back amendments to the "overtime" regulations on April 23, 2004. Employers have only 120 days to comply with the new requirements, scheduled to go into effect on August 21, 2004.

Reasons for Reform

Often referred to as the "white collar exemptions," the U.S. Department of Labor (DOL) has regulated when certain executive, administrative and professional employees are exempt from the payment of minimum wage and overtime. Most often these employees are compensated on a salaried, not an hourly, basis. The DOL's primary objective in amending the existing regulations was to streamline and clarify what were complex and confusing rules that too often served as a trap for the unwary but well-intentioned employer.

The Controversy Continues

As of the date of this writing, the new rules continue to generate a considerable amount of controversy and legislative activity, but we predict that the final rules will become effective in August. Democrats and labor organizations have criticized the final rules, expressing concern that millions of people will lose their right to overtime pay. Business organizations, on the other hand, have responded in an overall positive way to the prospect of more clearly-defined and updated regulations. The DOL maintains the changes will benefit both employers and employees by clarifying the confusion and eliminating the need for workers and employers to litigate eligibility for the exemptions.

Tool Kit for Understanding the New Rules

Between now and August 21, 2004, employers should conduct a self-audit of exempt positions using the new rules to determine whether these positions continue to qualify as exempt. The following checklist provides a good framework for such an audit.

• Three-Pronged Test: An exempt "white collar" employee must satisfy a three-pronged test: (1) the employee must be paid on a salary(not an hourly) basis; (2) the employee must earn at least the minimum salary level set by the new rules, and (3) the employee's job duties must fit within one of the three recognized white collar categories (executive, administrative, or professional).
• Required Weekly Salary Amount:
• The new regulations establish a required minimum weekly salary of $455 ($23,660 annually) for an employee to qualify for the "white collar" exemption. Under the old rules, the minimum salary was $155 per week.
• Duties Tests: The new rules some-what clarify the duties required for each of the three white collar exemptions.
• The new duties can be found at www.fairpay.dol.gov, along with helpful DOL Fact Sheets on several categories of jobs, such as insurance adjusters and positions in the financial services industry.
• Unpaid Disciplinary Suspensions: Employers can now suspend exempt employees without pay in single-day increments for certain serious disciplinary reasons.
• Highly Compensated Employees: An employee earning a total annual compen-sation of a least $100,000 is exempt if the employee customarily and regularly performs only one of the exempt duties or respons-ibilities of an executive, administrative or professional employee.
• Computer-related Occupations: An employee working in a higher-level computer role will be exempt if the individual satisfies one of the duties defined by the DOL, and the employee earns either $455 per week in salary or $27.63 per hour.
• Business Owners: Business owners with at least a 20% equity interest in the enterprise and who are actively engaged in the management of the business are automatically exempt, without consideration of salary level.

We are cautiously hopeful that the new rules will help business owners to properly classify and pay their employees without unreasonable risks of litigation over whether the employee should have received overtime pay. It is too soon to predict how the DOL's field investigators will interpret these new rules, and how the plaintiffs' bar will respond. On balance, the rules are a step in the right direction toward reducing an expanding number of class action lawsuits alleging violations of the old rules.

The DOL's primary objective in amending the existing regulations was to streamline and clarify what were complex and confusing rules that too often served as a trap for the unwary but well-intentioned employer.

 

Molly Kurt is a Partner with the law firm Blackwell Sanders Peper Martin LLP. She can be reached at mkurt@blackwellsanders.com or by phone at 816.983.8229.