Department of Labor Overhauls Overtime Regulations

Department of Labor Overhauls Overtime Regulations

By Patricia Lawrence, Human Resources Manager

On April 23, 2004, the U.S. Department of Labor (DOL) gave the exemption provisions of the Fair Labor Standards Act (FLSA) a bold face lift. It is the most dramatic overhaul of regulations that define exempt and non-exempt employees since 1938, when the FLSA established overtime rules.

All employers, including public companies, partnerships (like CPA firms), government agencies and nonprofit organizations, should be mindful of the difference between exempt and non-exempt employees.

White Collar Exemptions

The DOL’s face lift includes new exempt status rules for “white collar” employees. These regulations set standards to determine whether an executive, administrator, professional, outside sales person and computer technician are employees who could be exempt from overtime. An executive exempt employee could be a CPA practitioner, a partner at a CPA firm or an executive at a nonprofit organization. An administrative exempt employee could be an executive secretary or a conference or seminar coordinator. A professional exempt employee could be an accountant, a CPA, a CFO or an accounting manager. A computer exempt employee could be a network administrator or a computer programmer.

FLSA 2004 Regulations

Some highlights of the 2004 regulations include a new salary threshold and revisions to the administrative and outside sales exempt employees.

Salary Threshold

The new salary threshold above which an employee may qualify for the executive, administrative or professional exemption from the act’s minimum wage and overtime pay requirements is $23,600 per year, or $455 per week. This is a $300 per week increase over the current $155 per week wages. The “white collar” salary level was last adjusted in 1975. According to the DOL, “raising the threshold guarantees overtime pay rights to 6.7 million American workers who earn a salary between $155 and $455 a week.”

So, employees who receive a salary of less than $455 per week or $23,600 annually must be paid one and one-half times their regular hourly rate of pay for each hour worked over 40 hours in a one-week period.

However, if an employee earns a weekly salary of at least $455 per week, or $23,600 annually, the individual may qualify as an exempt executive, administrator or professional, if the employee also meets the duties test for one of the “white-collar” exemptions, such as supervising at least two full-time employees.

Administrative and Outside Sales Exemptions

The 2004 “white-collar” exemption revisions eliminated the “long” and “short” duties tests from the administrative exemption (and for the executive and professional exemptions) and replaced them with a new “standard” test.

The DOL also eliminated the requirement that an outside sales employee spend no more than 20 percent of his or her time engaged in non-sales activities in order to qualify for this exemption.

Effective Date for Compliance

The effective date for employers to achieve compliance of the new overtime regulations is Aug. 23, 2004. Employers should review job descriptions, employee policies and payroll records to see if changes are required to comply with the new regulations. For further information about the new regulations, you can download an electronic copy of the regulations from the DOL website at www.dol.gov/esa. Select “Federal Register” under “Laws and Regulations” on the right-hand side of the page and then select “Final Rules.”