Overtime Regulations May Affect Workers

The U.S. Dept. of Labor has issued new regulations that may require companies to pay overtime to ‘white collar’ employees who were previously exempt under the prior overtime rules and regulations.

These new regulations went into effect on August 23, 2004 and will strengthen overtime rights for more than 6.7 million workers. However, it is also important to note that some employees may have lost their eligibility for overtime pay under the new regulations. It is imperative that employers immediately review their company’s’ payroll practices for compliance with the new regulations because any mistake could be extremely costly.

The new regulations are referred to as the Department of Labor’s “Fair Pay Regulations.” These new regulations clearly state that the exemptions do not apply to manual labor, or ‘blue collar’ workers. Non-management production line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, ironworkers and craftsmen, operating engineers, construction workers, and laborers are all non-exempt under the revised regulations.

What follows is an overview of some of the important changes in the new regulations that affect employees:

• Salary Level Test: An employee must now earn a salary of at least $455 per week to qualify for the executive, administrative, or professional overtime exemption. The rule also adds a “highly compensated employee” test. Under this test, employees with “total compensation” of at least $100,000 per year will be considered exempt. To qualify for the exemption, however, the employee’s primary duties must consist of office or non-manual work, and the employee must customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee. The minimum of $455 per week must be paid as a salary, but the balance of the $100,000 may be in the form of commissions, nondiscretionary bonuses, or other nondiscretionary cash compensation.

• New Duties Test: To classify as exempt (assuming that the salary described above is sufficient), an employee’s duties must pass a duties test for an executive, administrative, or professional employee. The new regulations replace the current short and long test with one standard test for each category of white-collar employees.

• Executive Test Strengthened: The test for executives has also been tightened under the new regulations. Under the test, an executive must have the authority to hire, fire, or promote other employees or the executive’s recommendations must be given particular weight in order to quality an executive as exempt. This new provision will provide extra protection to low-level supervisors.

• Outside Sales Exemption: To qualify for the outside sales exemption under the new regulations, it is only necessary that the employee’s primary duty be sales or solicitation. Previously, an employee was disqualified under the exemption if more than 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the employee’s time was spent on work unrelated to outside sales.

• Permissible Salary Deductions: Under the new regulations, an employer may suspend an exempt employee without pay for violations of written workplace conduct rules. Under the old regulations, the employer was prohibited from suspending an employee without pay for less than one week with certain exceptions.

• Safe Harbor Provision: An employer with a clearly communicated written policy addressing how employees are to be paid will not lose the overtime exemption if the affected employee is promptly reimbursed for any improper deductions and the employer makes a good faith effort to comply with the regulations going forward.

Generally speaking, the new rules are intended to streamline and update the current rules. The vast majority of employees who currently have a clear and settled statutory right to overtime pay will continue to have the right to overtime pay under the new rules. In many cases, however, the new rules update or clarify the terms of the current rules without making any significant policy changes.

The new regulations make it simpler, clearer, and easier for employees to recognize when their rights are being violated. Simply stated, relatively few workers are likely to lose overtime protections because of the new rules and some will gain overtime protections; additionally, enforcement will become much easier for everyone.

Now is the time for businesses to conduct a comprehensive review of all employment practices relevant to these newly instituted regulations.

Michelle M. Begley, Esquire, is a member of Springfield-based Bacon & Wilson, P.C’s Litigation Department. Her areas of expertise include employment law and employee/employer issues; (413) 781-0560; mbegley@bacon-wilson.com.