Fair Measures - New Overtime Rules Now in Effect

New Overtime Rules Now in Effect 09-01-2004

New regulations revising the "white-collar" exemptions to the federal overtime law took effect on August 23, 2004. Will the new rules "strengthen overtime rights for 6.7 million American workers, including 1.3 million low-wage workers who were denied overtime under the old rules", as the Department of Labor says, or "strip away the right to overtime pay for over six million workers", as predicted by the Economic Policy Institute? No one knows yet, but what we do know is that managers and HR professionals have to make sure all workers who are entitled to overtime pay receive it.

What do the new regulations require? As under the current rules, to be exempt from receiving overtime pay an employee must met three tests: First, an exempt employee must be paid at least a minimum amount - $455 per week. Second, an employee must be paid on a "salary basis" - a predetermined amount each week, without deductions for the number of hours worked. Third, the primary job duties must fall into one of three general categories: "executive," "administrative" or "professional."

Under existing rules "administrative" employees must exercise "discretion and independent judgment" and work on management policies or general business operations. The 2004 rules also require that the employee exercise that discretion and judgment in "matters of significance", which means affecting the business in a substantial way or with a major financial impact.
"Executive" employees must have a primary duty of managing an enterprise, department or subdivision, and customarily direct the work of two or more other employees. The new rules also require that executives have the authority to hire, fire, demote, and promote other employees or have their input into those decisions be given "particular weight."
Under current rules, the work of "professional" employees must require knowledge of an advanced type in a field of science or learning customarily acquired by a four-year degree, such as the work done by doctors, lawyers, teachers, engineers, architects, and pharmacists. The new rules will allow employees to qualify for the professional exemption with a combination of instruction and work experience, potentially broadening the scope of this exemption. Creative professionals, who do work requiring invention, imagination, originality or talent, such as actors, musicians, writers, and artists, are also exempt.

There is also a new exemption for "highly compensated" employees. This exemption applies to those office workers who receive at least $100,000 per year if they also regularly perform any one of the exempt duties of an executive, administrative or professional employee.

As under the old rules, outside sales people remain exempt from overtime, but the test has changed a bit. There is no minimum salary requirement, but the outside sales person's primary duty must be making sales or obtaining orders or contracts, and the employee must be "customarily and regularly engaged away from the employer's place...of business".

Exception: While most state overtime laws are the same as federal law, 18 states provide more generous coverage or differing duties tests than the new federal rules. Workers in Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Washington, West Virginia and Wyoming get to take advantage of whatever law-state or federal-gives them the most benefits. Make sure you find out what laws you and your company need to follow!

Information here is correct at the time it is posted. Case decisions cited here may be reversed. Please do not rely on this information without consulting an attorney first.