08/ 31/ 2004
by Beth Gaudio
NFIB Legal Foundation
On August 23, the Department of Labor’s new rules governing which employees are entitled to overtime under the Fair Labor Standards Act became effective. The FLSA sets minimum wage and overtime requirements for employers. The new overtime rules attempt to make it clearer for business owners to understand who should be paid overtime.
The new rules make some significant changes with regard to the overtime exemptions for “white collar” employees, including executive, administrative, professional, computer and outside sales employees. Some of the most significant changes in the new rules are summarized below, but further detailed information on the new rules can be found on DOL’s Web site under “FairPay.” Remember that employees who were previously classified as exempt from overtime pay may no longer meet the threshold under the new rules. It is important to determine which employees qualify for exemptions under the new rules.
Executive ExemptionIn order to meet the executive exemption, an employee must:
- Have a salary of $455 per week
- Manage, as a primary duty, the enterprise or a department or subdivision thereof, in which the employee is employed
- Customarily and regularly direct the work of two or more other employees
- Have authority to hire, fire or promote other employees OR provide recommendations on employment decisions that are given particular weight
In order to meet the administrative exemption, an employee must
- Have a salary of $455 per week
- Perform, as a primary duty, office or non-manual work directly related to the management or general business operations of the employer or customers
- Exercise discretion and independent judgment with respect to matters of significance
In order to meet the professional exemption, an employee must:
- Have a salary of $455 per week
- Perform, as a primary duty, work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized instruction OR
- Perform, as a primary duty, work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor
Computer Employee Exemption
In order to meet the computer professional exemption, an employee must:
- Have a salary of $455 per week or $27.63 an hour
- Computer systems analysts, computer programmers, software engineers or other similarly skilled workers may be exempt, but only if the employee’s primary duty consists of (1) application of systems analysis; (2) design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on and related to user or system design; (3) design, documentation, testing, creation or modification of computer programs related to machine operating systems or (4) a combination of these duties
In order to meet the outside sales exemption, an employee must:
- As a primary duty, make sales or obtain orders or contracts for services for which consideration will be paid by the client or customer
- Customarily and regularly work away from the employer’s place or places of business.
Note: No minimum salary is required for the outside sales exemption.
In order to ensure that your business complies with the new overtime rules, you should consider doing the following now:
- Evaluate all of your employees, their job titles and salaries to determine who falls below the $455/week (or $23,660/year) threshold for overtime. If employees are paid less than the threshold, they no longer may be classified as exempt from overtime pay.
- Review all of your employees’ job descriptions to make sure they reflect accurate job duties. Remember that job titles do not determine exempt status.
- Remember that overtime pay under the FLSA is at least 1 ½ times an employee’s regular rate of pay and applies to all hours worked over a 40-hour workweek. Compliance with the FLSA does not guarantee compliance with state laws, which might provide higher requirements.
- Make sure your payroll records regarding hours worked, deductions and overtime payments are kept up-to-date
Finally, and most importantly, check out the new rules and the compliance assistance found on DOL’s Web site, and consult your own attorney for specific questions.
NFIB provides this Web site for informational purposes only and it is not intended to provide legal services or legal assistance for individual cases. You should consult a lawyer to discuss your individual situation.
This article was contributed by the NFIB Legal Foundation, a 501 (c)(3) public interest law firm created to protect the rights of America's small-business owners by providing advisory material on legal issues and by ensuring that the voice of small business is heard in the nation's courts. The National Federation of Independent Business (NFIB) represents the consensus views of its 600,000 members in Washington and all 50 state capitals. More information is available at www.NFIB.com/legal.
