Watch for New Overtime Regs

Published: May 31, 2004, By Sheila A. Millar, Attorney-at-Law, Keller & Heckman, Washington, DC

Members of the converting industry, like other industries, must become familiar with new overtime rules issued by the Dept. of Labor (DOL).

Despite a recent vote in the Senate to block or substantially reverse implementation of the overtime rules, the House of Representatives has not acted yet. The DOL has advised employers to begin now to update their procedures to ensure they are able to comply with what the DOL has dubbed the “FairPay” rules. Absent Congressional action, these rules will go into effect August 23.

Under the Fair Labor Standards Act (FLSA), the minimum wage is $5.15 an hour. Workers eligible for overtime are compensated at a rate of one and one-half times their salary for hours above 40 hours worked per week. Workers earning less than $23,660 per year, or $455 per week, are guaranteed overtime protection. This is almost triple the level of pay under the old version of the rules. The DOL has estimated this will offer protection to 6.7 million workers, including 1.3 million workers that were not eligible for overtime protection under the old rules.

The DOL has posted a number of helpful fact sheets on its Web site, including guidance on calculating salary levels, the impact of improper deductions from pay on an employee's exempt status, and a “safe harbor” for employees.

Section 13(a)(1) of the FLSA provides for an exemption from overtime pay requirements for certain categories of workers, including workers that work in a bona fide executive, administrative, professional, or outside sales capacity. Certain computer workers also are exempt. The new rules preserve those exemptions. Exemptions tests include the salary level, salary basis, and job duties. In all cases except for outside sales, to qualify for the executive, administrative, and professional exemption, workers must receive at least $455 per week.

Executives also must manage the enterprise, a subdivision, or department; customarily and regularly direct the work of at least two full-time (or equivalent) employees; and have hiring/firing authority, or their views on hiring and firing must be given weight.

Under the administrative exemption, the employee's main duties must be related primarily to the management or general business operations of the employer or its customers, and those duties must include the exercise of discretion with respect to matters of significance.

The primary duties of professionals must be the performance of work requiring advanced knowledge in a field of science or learning, and the advanced knowledge customarily must be acquired by a prolonged course of specialized intellectual instruction.

In the case of creative professionals, primary duties must include the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

To qualify for the outside sales exemption, the employee's primary duty must be making sales or obtaining orders for which a consideration is paid by a client or customer, and the employee must be regularly and customarily engaged away from the employer's place of business. The $455 per week salary threshold does not apply to the outside sales exemption. DOL has outlined a detailed test for computer workers, which may cover systems analysts, programmers, and software engineers.

Highly compensated workers also are exempt. This means workers that earn more than $100,000 per year, receive at least $455 per week, perform office or non-manual work, and customarily perform at least one of the exempt duties under the executive, administrative, or professional exemptions.

While the ultimate fate of the rules may hinge on Congressional action, it is advisable for converting industry members to evaluate their compliance status in advance of the expected implementation date. The first step is to identify employees now covered by overtime pay requirements given new salary thresholds. Since exemptions hinge on the “primary duties” test, this also necessitates assessing the responsibilities of employees earning more than $455 per week to confirm exempt status.

Of course, employers must implement internal procedures to make sure all non-exempt employees are paid for all overtime hours worked at the appropriate overtime level.

To qualify for the “safe harbor” on improper deductions, employers must communicate clearly to employees, preferably in writing, a policy that prohibits improper deductions, including a complaint mechanism. In addition, they must reimburse employees for improper deductions and make a good-faith commitment to comply in the future.