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U.S. Department of Labor Issues Significantly Scaled Back Regulations to Take Effect in 120 Days

Volume 3, Issue 5
April 21, 2004

On April 20, 2004, the U.S. Department of Labor ("DOL") released the long-awaited changes to Fair Labor Standards Act regulations pertaining to overtime exemptions. These changes are scheduled to be officially published in the April 23, 2004 issue of the Federal Register and take effect 120 days thereafter. The final rules are significantly scaled back from the more employer-friendly proposed regulations of a year ago and represent an apparent pre-election compromise by the Bush Administration.

The new DOL regulations require the payment of overtime for employees earning a salary of less than $455.00 a week or $23,660.00 annually. According to the Secretary of Labor, the increased salary level means that 1.3 million additional workers will be entitled to overtime along with another 5.4 million workers whose rights to overtime will be clarified.

The new regulations also eliminate what are known as the "long and short duties tests" for the "white collar" overtime exemptions and replace them with a single "standard duties test" to determine if employees earning between $23,660.00 and $100,000.00 are exempt from overtime requirements.

In addition, the new regulations establish a separate test for highly paid employees (earning in excess of $100,000 annually) and contain new provisions addressing the overtime requirements for specific occupations, such as public safety officials.

Of particular importance to employers, the new regulations expand the duties test used to determine whether executive employees are exempt by adding a requirement that such employees must have the authority to hire or fire other employees or make recommendations as to hiring, firing, or other changes of employee status that are given particular weight.

With respect to the exemption for administrative employees, long recognized as the most difficult exemption to apply, employers face an increased burden. The DOL had initially proposed eliminating the discretion and independent judgment criteria from the administrative employees test. Unfortunately, the new regulations maintain the requirement that an exempt administrative employee exercise discretion and independent judgment and add a new requirement that such employees must exercise discretion and independent judgment "with respect to matters of significance".

Of some consolation to employers, the new regulations do allow some additional flexibility to dock the pay of exempt employees if done on daily intervals. Thus, otherwise exempt employees can be suspended without pay in whole day increments for violating company rules, such as a sexual harassment policy or safety procedures. In the past such disciplinary action could only be taken on a weekly basis.

Based on these new regulations, employers must carefully scrutinize those employees currently designated as overtime exempt and make sure they are still in compliance.

Fact sheets and other overtime-related materials, including a PowerPoint summary of the new regulations can be found at the DOL's new "Fair Pay" web page.

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.