NEW
OVERTIME REGULATIONS
Effective
August 23, 2004, the Wage and Hour Division of the U.S. Department of Labor has
issued revised regulations that update the exemptions for salaried executive,
administrative, professional and other “white collar” employees who are not
entitled to overtime pay for working more than forty (40) hours in a week.
The
highlights of the new regulations include:
1.
The salary level for employees who are automatically entitled to overtime
pay has been increased from $155 per week to $455 per week, which is an annual
salary of $23,660. This means that any salaried employee who makes less than
$455 per week will be entitled to overtime pay for work in excess of 40 hours
per week regardless of the employee’s duties and responsibilities.
The new regulations do not apply to manual laborers and “blue collar”
workers who continue to be eligible for overtime pay, such as non-management
production line employees and non-management employees in maintenance,
construction and any of the trades (carpenters, plumbers, electricians, etc.).
2.
For salaried employees who make at least $455 per week, the statutory
exemption from overtime pay requirements may apply, depending on the
employee’s specific duties and responsibilities.
“Salary” for this purpose is a predetermined amount of compensation
paid on each pay period. Such compensation, to qualify as salary, cannot be reduced
because of variations in the quality and quantity of work and, with specific
exceptions, must be payable in full for any week in which the employee performs
any work. Improper deductions
from an employee’s compensation can cause the loss of the employee’s exempt
status (see item 6 below). Permitted
deductions from salary payments include:
·
Proportionate
payments for time actually worked during the first and last weeks of employment.
·
Absences
from work for one or more full days for personal reasons other than sickness or
disability.
·
Absences
from work for one or more full days due to sickness or disability pursuant to
the employer’s bona fide sick leave plan or policy providing “wage
replacement” benefits.
·
Offsets
for amounts received for jury fees, witness fees or military pay.
·
Penalties
imposed in good faith for violating safety rules of “major significance.”
·
Disciplinary
suspensions of one or more full days imposed in good faith for violation of work
rules.
Also
note that certain employees, such as outside sales persons and employees in
certain computer-related occupations who meet minimum compensation requirements,
can be exempt even if not paid on a salaried basis.
3.
Salaried employees earning at least $455 per week will qualify as exempt
“executive” employees if they satisfy all of the following requirements:
·
The
employee’s primary duty is management of an enterprise or a customarily
recognized department or division thereof.
·
Management
duties for executive employees include selecting and training employees, setting
pay and work hours, maintaining production or sales records, evaluating
employees’ performance, handling complaints and grievances, disciplining
employees and planning and allocating work among employees.
·
The
employee “customarily and regularly” directs the work of at least two other
full-time employees.
·
The
employee has the authority to hire or fire other employees or the
employee can make recommendations as to hiring, firing and promotion of other
employees that are given “particular weight.”
The
executive exemption also applies to employees who have a bona fide ownership
interest in at least twenty percent (20%) of the business and are actively
engaged in its management.
4.
Salaried employees earning at least $455 per week will qualify as exempt
“administrative” employees if they satisfy all of the following
requirements:
·
The
employee’s primary duty is the performance of office or non-manual work
directly related to the management or general business operations of the
employer or its customers, including “staff” jobs in the areas of tax,
finance, accounting, quality control, purchasing, advertising, marketing,
research, human resources, employee benefits, labor relations, governmental
relations and regulatory compliance.
·
The
employee’s primary duty includes the exercise of discretion and independent
judgment with respect to matters of significance, such as formulating management
policies and operating practices, operating a particular segment of the business
that affects overall business operations to a substantial degree, carrying out
major assignments relating to the operation of the business, exercising
authority to commit the employer with respect to matters that have a significant
financial impact, providing consultation or expert advice to management,
planning long term or short term business objectives, and representing the
employer in handling complaints, arbitrating disputes and resolving grievances.
Exempt
administrative duties do not include working on a production line, selling a
product in a retail or service
establishment, recording or tabulating data, clerical work, or applying
established procedures or standards described in manuals or other references
(this includes inspectors performing routine inspections as well as examiners
and graders who compare products to established standards).
5.
Employees in the exempt professions generally include doctors, registered
nurses (not practical nurses), lawyers, teachers, accountants, pharmacists,
engineers, actuaries, executive chefs, athletic trainers and licensed funeral
directors.
6.
Although an employee’s exempt status can be lost if amounts are
improperly deducted from the employee’s “compensation,” such deductions
will not cause the loss of exempt status if they are isolated or inadvertent and
the employer reimburses the employee for the deduction.
Improper deductions would include deductions for partial-day absences for
personal reasons and deductions of a day’s pay because the employer’s
business was closed for weather-related reasons.
However, an actual practice of making improper salary deductions will
result in the loss of the exemption unless the employer follows the “safe
harbor” procedure by:
·
Clearly
communicating a policy prohibiting improper deductions, including a complaint
mechanism;
·
Reimbursing
employees for any improper deductions; and
·
Making
a good faith commitment to comply in the future.
A
model safe harbor notice has been prepared by the Department of Labor and is
available at www.dol.gov/esa/regs/compliance/.
Recommendations:
Compliance basics are not changed by the new regulations.
Employers must examine the job duties of employees who meet the $455 per
week salary threshold. There may be
employees currently treated as exempt who should not be, and vice versa.
Employers must also maintain and communicate a policy of requiring
non-exempt employees to record all working time and all such time must be
compensated. Finally, consider
circulating a “safe harbor” notice (item 6 above) by including it in an
employee handbook, publishing it on the employer’s intranet or handing it out
with employment applications.
Edition
Date: October 8, 2004
Andrew
S. Williams
Aronberg Goldgehn Davis & Garmisa
One IBM Plaza, Suite 3000
Chicago, Illinois 60611
312/755-3145
awilliams@agdglaw.com
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