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DOL Proposes Changes to Overtime Exemptions

Volume 2, Issue 4
May 1, 2003

On March 31, 2003, the Department of Labor ("DOL") proposed new regulations which are designed to "modernize" the 50-year-old regulations defining "white collar" exemptions from overtime requirements. If implemented, the proposed regulations may significantly impact how employers classify white collar employees.

The DOL proposes the following changes:

1. Increase the minimum salary requirement for the "white collar" exemption (for administrative, executive, professional, and/or computer employees) to $425 per week. The proposed change, if implemented, is projected to guarantee overtime to an additional 1.3 million low-wage employees, because white collar employees, under the proposed regulation, will need to make at least $22,100.00 a year to classify as exempt.

2. Eliminate the "long-test" to determine whether administrative, executive, professional, computer, and/or outside sales employees are exempt from overtime requirements. The "long-test" allowed employers to classify as exempt employees who devoted no more than 20% of their work week to performing non-exempt duties. This provision would be eliminated by the proposed regulation.

3. Revise the job duty requirements to better correspond to 21st century workplace realities:

  • Administrative Employees: Provided they meet the salary test, administrative employees are presently exempt if they customarily and regularly exercise discretion and independent judgment and their primary duty is the performance of office or non-manual work which directly relates to the management or general business operations of the employer or its customers. The proposed regulation eliminates the discretion and independent judgment facet of this test and implements a new standard which requires the administrative employee to hold a "position of responsibility" with the employer. A position of responsibility is defined as either performing work of substantial importance to the employer or performing work requiring a high level of skill or training.

  • Learned Professionals: Learned professionals are presently exempt if they exercise discretion and independent judgment and perform office or non-manual work which requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. The proposed regulation eliminates the discretion and judgment facet of this test and recognizes knowledge acquired by alternative means, such as a combination of intellectual instruction and work experience.

  • Creative Professionals: The job duty test for the creative professional exemption remains the same except that the discretion and judgment component is removed.

  • Computer Employees: The discretion and judgment component is also removed from the computer employee's exemption and the DOL proposes a new standard test which tracks the Section 13(a) (17) test. See www.dol.gov for more information.

4. Allow full-day deductions from exempt employees' salaries for absences due to discipline. Under the proposal, employers would be permitted to suspend exempt employees for less than one (1) week and make a full-day deduction from the employee's salary for absences occurring because of discipline. The proposal retains the rule against partial-day deductions.

At present, these changes are simply proposals. While there is no need to immediately reclassify employees, employers should consider reviewing the impact of the proposed changes on their workforces and providing comments or questions to the DOL.

Such comments must be submitted to the DOL in writing on or before June 30, 2003 to Tammy D. McCutchen, Administrator, Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, NW, Washington, DC 20210 or, if 20 pages or less, via facsimile to (202) 693-1432 or via e-mail to: whd-reg@fenix2.dol-esa.gov.

Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.