June 7, 2004
Workin' overtime | An overview of the Department of Labor's new rules for overtime pay
By Frank Mcguire And Anne-marie Storey
The U.S. Department of Labor has issued new regulations governing exemptions from the overtime pay provisions of the Fair Labor Standards Act. These regulations, which take effect Aug. 23, are meant to update and simplify the current intricate exemption rules. Here's a snapshot of the new rules.
Only "white collar" employees who receive a salary and perform specified duties are exempt from overtime pay requirements. Overtime rights are protected for public safety personnel, as well as manual laborers or other "blue collar" workers, no matter how highly paid they are.
The basics for the exemptions ˆ a test for the "duties" for each category, and a requirement of pay on a salary, fee or other permitted basis ˆ still apply. The new rules drop the alternative "short" and "long" tests for each exemption and give a broader single "primary duties" test for each category. The minimum salary for most exempt categories is now $455 per week ($23,660 per year). The effect of the new salary floor should be substantial: The Department of Labor predicts that 6.7 million lower-paid salaried workers will begin to earn overtime pay.
The new regulations also remove the prior rule, in most categories, that non-exempt duties could not occupy more than 20% of an exempt employee's time. Below, an overview of the affected categories.
Executive employees
An exempt executive employee has a primary duty of management of the enterprise or of a customarily recognized subdivision or department thereof; customarily and regularly directs the work of two or more other employees; and has the authority to hire or fire employees, or has "particular weight" given to suggestions or recommendations on change of status of other employees.
The requirement of hiring and firing authority, or input with "particular weight" on such decisions, is new. The term "particular weight" is defined to include factors such as whether the job duties include making such suggestions and recommendations, and the frequency with which such suggestions are made and relied on.
Executive employees no longer need to exercise "discretion or independent judgment," and they can now perform exempt and nonexempt work concurrently. For example, an assistant store manager may stock the shelves, so long as her primary duty is management.
Administrative employees
An exempt administrative employee must have a primary duty of office or non-manual work "directly related to the management or general business operations of the employer or the employer's customers" and exercise "discretion and independent judgment" "with regard to matters of significance."
The exercise of discretion and independent judgment requires only the authority to make "an independent choice," even if that choice is reviewed at a higher level and not adopted. New specific examples in the rules explain the exempt status of particular professions, such as human resource managers.
Professional employees
There are now two types of professional exemptions: learned and creative. To meet the "learned professional" exemption, an employee must have a primary duty of performing work requiring "advanced knowledge" in a field of science or learning that is customarily acquired through a prolonged course of specialized intellectual instruction. "Advanced knowledge" cannot be attained at the high school level or in jobs where skill is gained by experience. A new section addresses the exempt status of certain professions, including registered or certified medical technologists, nurses, dental hygienists, physician assistants and accountants.
A "creative professional" must have a primary duty requiring invention, originality or talent in a recognized artistic or creative field.
Professionals, and some administrative employees, may be paid a flat fee by the job rather than a salary.
Outside sales employees
An exempt outside sales employee must have a primary duty of making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and be customarily and regularly engaged away from the employer's place of business.
This "primary duty" encompasses incidental work like solicitations and collections. But the outside sales person must make sales at a customer's place of business or sell door-to-door; sales made by mail, telephone or online do not qualify unless such contact is used "merely as an adjunct to personal calls."
Computer employees
An exempt computer employee must meet the salary or fee basis test above or, if compensated on an hourly basis, be paid at a rate not less than $27.63 an hour; work as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field; and perform as his or her primary duty one or more of several listed functions.
Highly compensated employees
Highly compensated employees performing office or non-manual work and paid $100,000 or more per year (including at least $455 per week on a salary or fee basis) are exempt if they customarily and regularly perform at least one of the duties of an executive, administrative or professional employee identified above. The Department of Labor predicts 107,000 such workers will lose their present overtime pay entitlement when the new rules take effect.
The full text of the regulations can be found at www.dol.gov/fairpay.
Only "white collar" employees who receive a salary and perform specified duties are exempt from overtime pay requirements. Overtime rights are protected for public safety personnel, as well as manual laborers or other "blue collar" workers, no matter how highly paid they are.
The basics for the exemptions ˆ a test for the "duties" for each category, and a requirement of pay on a salary, fee or other permitted basis ˆ still apply. The new rules drop the alternative "short" and "long" tests for each exemption and give a broader single "primary duties" test for each category. The minimum salary for most exempt categories is now $455 per week ($23,660 per year). The effect of the new salary floor should be substantial: The Department of Labor predicts that 6.7 million lower-paid salaried workers will begin to earn overtime pay.
The new regulations also remove the prior rule, in most categories, that non-exempt duties could not occupy more than 20% of an exempt employee's time. Below, an overview of the affected categories.
Executive employees
An exempt executive employee has a primary duty of management of the enterprise or of a customarily recognized subdivision or department thereof; customarily and regularly directs the work of two or more other employees; and has the authority to hire or fire employees, or has "particular weight" given to suggestions or recommendations on change of status of other employees.
The requirement of hiring and firing authority, or input with "particular weight" on such decisions, is new. The term "particular weight" is defined to include factors such as whether the job duties include making such suggestions and recommendations, and the frequency with which such suggestions are made and relied on.
Executive employees no longer need to exercise "discretion or independent judgment," and they can now perform exempt and nonexempt work concurrently. For example, an assistant store manager may stock the shelves, so long as her primary duty is management.
Administrative employees
An exempt administrative employee must have a primary duty of office or non-manual work "directly related to the management or general business operations of the employer or the employer's customers" and exercise "discretion and independent judgment" "with regard to matters of significance."
The exercise of discretion and independent judgment requires only the authority to make "an independent choice," even if that choice is reviewed at a higher level and not adopted. New specific examples in the rules explain the exempt status of particular professions, such as human resource managers.
Professional employees
There are now two types of professional exemptions: learned and creative. To meet the "learned professional" exemption, an employee must have a primary duty of performing work requiring "advanced knowledge" in a field of science or learning that is customarily acquired through a prolonged course of specialized intellectual instruction. "Advanced knowledge" cannot be attained at the high school level or in jobs where skill is gained by experience. A new section addresses the exempt status of certain professions, including registered or certified medical technologists, nurses, dental hygienists, physician assistants and accountants.
A "creative professional" must have a primary duty requiring invention, originality or talent in a recognized artistic or creative field.
Professionals, and some administrative employees, may be paid a flat fee by the job rather than a salary.
Outside sales employees
An exempt outside sales employee must have a primary duty of making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and be customarily and regularly engaged away from the employer's place of business.
This "primary duty" encompasses incidental work like solicitations and collections. But the outside sales person must make sales at a customer's place of business or sell door-to-door; sales made by mail, telephone or online do not qualify unless such contact is used "merely as an adjunct to personal calls."
Computer employees
An exempt computer employee must meet the salary or fee basis test above or, if compensated on an hourly basis, be paid at a rate not less than $27.63 an hour; work as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field; and perform as his or her primary duty one or more of several listed functions.
Highly compensated employees
Highly compensated employees performing office or non-manual work and paid $100,000 or more per year (including at least $455 per week on a salary or fee basis) are exempt if they customarily and regularly perform at least one of the duties of an executive, administrative or professional employee identified above. The Department of Labor predicts 107,000 such workers will lose their present overtime pay entitlement when the new rules take effect.
The full text of the regulations can be found at www.dol.gov/fairpay.
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