Labor Department issues new overtime pay rules

On April 23, the Department of Labor issued final regulations under the Fair Labor Standards Act that are the first meaningful changes in the rules governing white-collar exemptions in almost 50 years.

However, under the regulations—known as the FairPay rules—workers receiving less than $23,660 per year or $455 per week are guaranteed overtime pay. Those amounts represent considerable increases over levels established decades ago.

The FLSA provides an exemption from those overtime pay rules for bona fide executive, administrative, professional (learned professional or creative professional), and outside sales employees and certain computer employees. To be exempt, they must be paid on a salary basis at not less than $455 per week, and they must meet certain tests regarding their job duties. Job titles do not determine exempt status.

The department estimates that the FairPay rules will impact the pay of an estimated 6.7 million U.S. workers when they go into effect Aug. 23, 2004.

The modifications were determined to be necessary to address the profound changes in the structure of the American workplace over the past half century. In addition, the current regulations have been criticized for being a source of confusion for both employers and employees. That has led to an escalation in litigation for alleged violations. The number of class action lawsuits under the FLSA has more than doubled since 1997. Responding to those lawsuits takes valuable time and resources away from businesses.

Although the intent of the revisions is to provide clarity in determining exemptions from overtime, there will likely be cases where interpretation may be difficult.

A hearing of the House Subcommittee on Workforce, Empowerment, and Government Programs was held May 20 to solicit testimony on the impact of the FairPay rules on small businesses. While some trade associations representing specific sectors of the small business community gave testimony favoring the new regulations, other parties expressed concern that there is still considerable ambiguity in how exemptions are determined.

Some highlights obtainable from the Department of Labor's FairPay Web site fact sheets are as follows:

• Employed veterinarians would qualify for the "learned professional" employee exemption from guaranteed overtime pay if the following qualifications were met:
  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate of not less than $455 per week.
  • The employee's primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.
  • The advanced knowledge must be in a field of science or learning.
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
• Office administrators and managers could qualify for the "administrative" employee exemption from guaranteed overtime pay if the following qualifications were met:
  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate of not less than $455 per week.
  • The employee's primary duty must be the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers.
  • The employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

Licensed and/or certified veterinary technicians, assistants, and receptionists do not qualify for the exemption, and therefore, must be paid at least the federal minimum wage for all hours worked and overtime pay at time and a half for all hours worked over 40 in a workweek.

Employers and employees should familiarize themselves with the new exemption classification tests to determine whether they are in compliance. Salaried employees and their employers would be well-advised to keep time cards, just as hourly workers are required to do. Questions should be directed to an attorney skilled in labor law.