Employment Law Update: New Overtime Rules

Date: Apr 20, 2004

The Department of Labor today released the new final regulations governing employee overtime eligibility under the Fair Labor Standards Act (FLSA).

These rules will take effect 120 days from the date on which they are published, which we anticipate will be sometime this week.

Some Of The Significant Changes To the Rule

Under the new rules, workers earning less than $23,660/year (or less than $455/week) are guaranteed overtime rates for all hours worked over 40 hours in a workweek. Under the old version of the rules, only employees earning less than $8,060/year were guaranteed overtime.

The regulations also contain new provisions that guarantee overtime pay to "blue collar" workers, police officers, firefighters, paramedics, EMT's, and licensed practical nurses. This is a significant change from the old rule.

The new rule defines the "highly compensated test," which exempts workers that are compensated more than $100,000 per year; receive at least $455 per week; perform office or non-manual work; and customarily perform exempt duties under the executive, administrative or professional exemptions.

The new regulations under the FLSA still provide exemptions from overtime pay for bona fide executive, administrative, professional, outside sales, and certain computer employees.

To qualify for the exemption under the new rules, employees must meet certain tests regarding job duties and be paid on a salary basis at not less than $455/week.

For example, to qualify for the administrative exemption, the following tests must be met:

1) The employee must be compensated on a "salary" or fee basis at not less than $455/week;

2) The employee's "primary duties" must be 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) The employee's "primary duties" include the exercise of discretion and independent judgment with respect to matters of significance.

The definition for "Primary Duty" has changed significantly; employees who spend more than 50% of their time performing exempt work will generally satisfy the primary duty test. However, other factors may be considered in the event that an employee spends less than 50% of his time performing exempt work. meet the definition of having an exempt primary duty.

What Employers Should Do

These new standards will have a great impact on the employers everywhere, as they will affect the amounts and methods by which employees are paid.

In light of these significant regulatory changes, employers should train their payroll and human resources professionals and should coordinate with their employment counsel to make changes to their payroll processes and exempt classification before the effective compliance date.