On April 20, the U.S. Department of Labor issued final regulations governing the Fair Labor Standards Act’s overtime requirements and employee exemptions. Some of the more significant changes, which take effect Aug. 23, include:
* Salary test — The “long” and “short” salary tests have been eliminated. An employee must now earn $455 per week or $23,660 a year to be exempt from overtime.
* Highly compensated employees — Employees qualify for the executive, administrative or professional exemptions if they are paid $100,000 annually, perform office or nonmanual work and perform one or more of the exempt duties of an executive, administrative or professional employee.
* Duties test — Whether an employee performs an exempt duty will be based on the primary duties of the job, defined as “the principal, main, major or most important duty that an employee performs.” Employees who spend more than 50 percent of their time performing exempt tasks will meet the duties requirement, even when not all of that time is spent performing their primary duty.
* Executives — To qualify as exempt, an executive employee must primarily manage the enterprise in which the employee is employed or a customarily recognized department or subdivision; customarily and regularly direct the work of two or more other employees; and have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees. This third requirement is new and may result in certain employees losing their exempt status.
* Professionals — To qualify as a learned professional, an employee must primarily perform office or nonmanual work requiring advanced knowledge in a field of science or learning that is customarily acquired by a prolonged course of specialized intellectual instruction or acquired through equivalent combinations of intellectual instruction and work experience. The new rule recognizes that in today’s workplace, advanced knowledge may be acquired through a combination of formal college-level education, training and work experience.
* Administrative employees — An employee’s primary duty must be the performance of office or nonmanual work that is directly related to the management or business operations of the employer and includes the exercise of discretion and independent judgment. This is essentially the same as the old regulation.
* Outside sales exemption — The employee’s primary duty must be outside sales. There is no limitation on non-outside sales work under the new regulation.
* Pay docking — An employer may dock an employee’s pay for one day as discipline without losing the overtime exemption.
* Safe harbor provision — Employers with clearly communicated policies prohibiting improper deductions no longer face automatic loss of exempt status for inadvertent deductions made from an exempt employee’s salary. The policy must have a complaint procedure, and the employer must reimburse the affected employee to take advantage of this safe harbor.
The DOL has described the new rules as a “catalyst for compliance,” a clear signal that it intends to step up compliance efforts in this area. In addition, the federal wage and hour laws provide for a private cause of action — meaning that employers should critically examine their work forces and classifications to ensure that they are in compliance with the new regulations. Christopher J. Carney is a partner in the Cleveland office of Brouse McDowell. Reach him at (800) 837-5711 or [email protected].
