Overtime Pay

New overtime pay rules went into effect on August 23, 2004. The changes mark the first major overhaul of the federal overtime law in more than 50 years.

Under the new overtime wages rules, workers earning less than $23,660 per year - or $455 per week - are guaranteed overtime protection. This will strengthen overtime rights for 6.7 million American workers, including 1.3 million low-wage workers who were denied overtime under the old rules. It also will benefit whitecollar workers.

The most important change made by the new federal rules is the increase in the minimum salary level for exempt employees. Workers earning less than the minimum are not exempt from the rules, regardless of what duties or responsibilities they might have. Under the old law, that minimum was only $8,060 a year. The new rules increase this to $23,660. If an employee’s annual salary falls below that figure, it doesn’t matter how the employee’s position would otherwise be classified; he/she must be paid overtime.

The old law identified four categories of workers who could be exempt: executive, administrative, professional, and outside sales. The new law retains these four and adds two more: computer professionals and highly-compensated employees.

• The new overtime law will not affect blue-collar workers; they will continue to get overtime.
• The new federal law also eliminates the restriction on the number of hours a sales employee can spend on duties unrelated to outside sales and still be exempt.
• In a change from the original proposal, police, firefighters and other "first responders" are explicitly guaranteed overtime, along with factory and construction workers.
• Salaried employees paid between $23,660 and $100,000 a year may or may not be automatically 28 eligible for overtime, depending on certain criteria regarding job duties. (But employers are free to pay it if they choose.)
• The final Part 541 rules explicitly protect union members covered by collective bargaining agreements. Final §541.4 states that “nothing in the Act or the regulations in this part relieves employers from their contractual obligations under collective bargaining agreements.” Unionmembers who work under collective bargaining agreements that incorporate FLSA eligibility by reference also stand to benefit.
• The new federal rules also provide that a person who owns at least 20% of a company can be exempt if he/she is actively engaged in management of the company.

Determination of exempt Status

Employees are classified as exempt or non-exempt on the basis of the work they normally and actually perform, not merely according to job title or position. Job title is irrelevant under the new law. Also, the fact that the employer pays an employee a salary has no impact on whether the employee is exempt. If the employee has a variety of duties, and spends more than half of his/her time on those that are exempt, the employee probably will be considered exempt.

Executive Exemption

To qualify for the executive employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week.
• The employee's primary duty must be managing the enterprise, or managing a customarily-recognized department or subdivision of the enterprise.
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
• The employee must have the authority to hire or fire other employees, or his/her suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

Administrative Exemption

To qualify for the administrative employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week.
• The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers.
• The employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week.
• The employee's primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.
• The advanced knowledge must be in a field of science or learning.
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

To qualify for the creative professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week
• The employee's primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Outside Sales Exemption

To qualify for the outside sales employee exemption, all of the following tests must be met:

• The employee's primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.
• The employee must be customarily and regularly engaged away from the employer's place(s) of business.

Workers not Exempt:

These exemptions do not apply to:

1. Manual laborers or other blue-collar workers who perform work involving repetitive operations with their hands, physical skill and energy - such as production, maintenance, construction and similar occupations ( e.g., carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, construction workers and laborers), no matter how highly-paid they might be.

2. Police, firefighters, paramedics, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers, and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.

New overtime rules and fear factor

• The new overtime rules may strip overtime pay from at least 6 million workers, many of whom may suddenly become professionals or take on supervisory roles in name only.
• Anyone who makes more than $100,000 a year and has whitecollar duties, such as administrative or executive work, will most likely not be entitled to overtime. Workers earning between $23,660 and $100,000 who had received overtime pay can lose the right for the extra pay if their employers reclassify them as professionals, administrators or executives.
• New regulations could cause inconsistency at the workplace. One company might decide to keep paying overtime, while other similar businesses might eliminate overtime to the same type of employees if they no longer have to pay them premium wages.
• Nurses, computer workers, chefs, insurance claims adjusters, journalists, funeral directors, and salespeople are among workers who could lose overtime rights.
• Some employees may find themselves forced to work overtime, instead of volunteering for it, because their employers can now have them put in extra hours without premium pay. Employees may end up working longer hours at less pay.