On August 23, 2004, new regulations concerning overtime pay requirements
became effective. These regulations were created by the
United States Department of Labor. Courts are not bound by the regulations,
but if a court finds that a regulation was properly issued by the DOL, then
the regulation may be highly persuasive authority regarding who must be paid
overtime compensation.
The new regulations are long and complicated. The DOL wrote that it was
attempting to update applicable standards and simplify the regulations. The
standards have certainly been updated. But whether they have been simplified
will not be known until they are tested in the courts.
In the meantime, employers and employees should act as if the regulations will
be adopted by the courts. Although the courts are not likely to adopt all the
regulations, most of them likely will be adopted. And many are intended not to
change the law but merely to clarify the existing law.
The highlights of the changes resulting from the new regulations are:
All employees who are paid less than $23,660 a year are now entitled to
overtime pay.
Employees who are paid a salary of at least $455 per week, earn more than
$100,000 per year, perform office or non-manual work, and were entitled to be
paid overtime, are no longer entitled to overtime pay.
Federal overtime laws provide an exemption for "executive" employees.
If these employees are paid a salary of at least $455 per week, they are not
entitled to overtime compensation. Under the old regulations, An "executive"
employee was not required to have authority to hire or fire as
part of their job duties. Now, to remain qualified as an “executive” not
entitled to overtime compensation, the same employee must have such authority
or have particular weight given to suggestions and recommendations made by the
employee as to the hiring, firing, advancement, promotion or any other change
of status of other employees.
Individuals who own at least 20 percent of the business and are actively
engaged in managing the business are not entitled to overtime pay.
To prove that an outside sales employee was not entitled to overtime
compensation, employers were required to show that no more than 20 percent of
the employee’s time was spent on work not related to making sales. Under the
new regulations, an employer need only show that the employee’s primary duty is
making sales and that the employee is customarily and regularly engaged away
from the employer's place or places of business in performing such primary
duty.
The prior regulations were highly restrictive regarding what kind of pay
deductions could be taken without changing an employee from being paid on a
salary basis to an hourly basis. Only salaried employees are exempt from being
paid overtime compensation. The new regulations add a way for employers to take
pay deductions without changing the employee’s pay status from salaried to
hourly. Unpaid disciplinary suspensions of one or more full days imposed in good
faith for infractions of workplace conduct rules, such as rules prohibiting
sexual harassment or workplace violence are now permitted without requiring an
employer to pay the employee overtime compensation. But such suspensions must
be imposed pursuant to a written policy that applies to all workers.
The regulations create a “safe harbor” rule that permits employers to
avoid liability by creating, implementing, and following, a well communicated
policy concerning employee rights and pay deductions. The policy must include
complaint mechanisms for employees, and the employer must reimburse employees
who make well founded complaints about pay deductions.
This summary merely highlights some of the issues addressed in a 500 page
document issued by the DOL to explain the regulations. The full document and
regulations can be read
here.
Wage and hour laws have long been among the most difficult and complex of all
employment and labor laws to understand and apply. To decide whether overtime
compensation must be paid to a category of employees always requires a careful
review of the specific facts involved. Despite the DOL’s declaration that it
has simplified and streamlined the rules, they remain a complicated legal web.
Employees should seek counsel from their attorney or the
United States Department of Labor, Wage and Hour Division to answer questions
about entitlement to overtime compensation.
Actions that most employers should take in light of the new regulations include:
Update employee handbooks to include policies necessary to establish
safe harbor.
Review and revise job descriptions to more closely align with the many
new regulations regarding specific job titles
Review and reclassify all employees who switch between overtime exempt
and non-exempt status resulting from the new regulations.
If you have questions about how the new regulations affect you or your
business, please contact me.
