Contact Information:
(512) 472-1172
(512) 697-0038 Facsimile
P.O. Box 49280
Austin, Texas 78765
Email: aaron@adlglaw.com
The Law Office of Aaron Charles de la
Garza
Counselor and Attorney at Law
Austin, Texas
Client Alert:
The New Overtime
Regulations:
Are You
Ready?
On Monday, August
23, 2004, the Department of Labor’s controversial revisions to the rules
governing overtime pay went into effect. These revisions change the
circumstances under which employees must be provided overtime pay, and
introduce a few new ways for employers to avoid liability for overtime
errors. There has
understandably been confusion about the effect of the new rules, which are
intended by the Department to clarify what has been a
sometimes-unintelligible body of rules dating from the 1940s, rules which
have unfortunately generated an enormous amount of time-consuming and
expensive litigation. For
your convenience and reference, we have developed the following general
summary of the most significant changes to the overtime rules.
I.
The Revised
“White-Collar” Exemptions From Overtime
Despite the popular presumption that the new rules weaken overtime protections, the revisions overall make it more difficult to classify an employee as exempt from overtime pay. The new rules, thus, may necessitate reclassifying employees who had previously been exempt from overtime. It is important to remember that the Department of Labor continues to maintain that job titles alone do not indicate which employees are exempt or non-exempt. Instead, each employee’s salary and actual duties must be analyzed individually.
The most common exemptions
from the overtime pay requirement (executive, administrative, and
professional) now require a minimum salary of $455 per week, or $23,660
per year. Any employee
earning less than this amount is simply not eligible for these
exemptions. Employees earning
salaries of over $100,000 per year are, in contrast, generally
exempt. The Department of Labor also makes
clear in the new rules that manual or non-office occupations (“blue
collar” jobs) are never exempted from overtime pay under the executive,
administrative, or professional exemptions.
A. Executive Exemption
The executive employee exemption is more stringent than under the previous overtime rules. The primary duty of the employee in question must be management of the enterprise in which employee is employed, and the employee must customarily and regularly direct the work of two or more other employees. The new rules, however, add an additional requirement: the employee must have the authority to hire or fire other employees, or his or 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.
B. Administrative Exemption
The administrative exemption, which is easily the most misunderstood of all the exemptions, is also arguably more difficult
to meet under the new rules.
Again, the first part of the test remains the same: to be exempt
under the administrative exemption, 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.
Moreover, this primary duty must still include the exercise of
discretion and independent judgment.
The new rules, however, add that this exercise of discretion and
independent judgment must be made with respect to “matters of
significance.” It is at this
time unclear what interpretation the Department of Labor will give
“matters of significance.”
This may have the effect of further
limiting the scope of the exemption, although recent case law indicates
that courts may treat the revised administrative exemption as simply a
restatement of the previous rules.
C. Professional Exemption
In contrast to the previous two exemptions, the professional exemption is slightly easier to meet under the new rules. To qualify under the learned professional exemption, the employee’s primary duty must be the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. In contrast to the previous rule, the revised rule allows the “knowledge of an advanced type” to sometimes be acquired via work experience or other non-academic training, thus allowing non-degreed persons to very occasionally qualify for the exemption.
II. Other Revised Exemptions
A. Outside Sales Exemption
The outside sales exemption has
been simplified under the new rules.
Most significantly, the old rules required that an employee
qualifying for this exemption devote no less than 80 percent of his or her
time working on outside sales duties. Under the new test, the Department
of Labor has employed a qualitative test, requiring that outside sales be
the employee’s “primary duty.”
This change should reduce employer burdens and constitutes a more
realistic way to evaluate whether an employee is an outside
salesperson. Notably, the
minimum and maximum salary requirements discussed above do not apply to
the outside sales exemption.
B. Computer Employee
Exemption
The computer employee exemption has also been
simplified. The revised computer employee exemption removes the previous
requirement that employees under the exemption consistently exercise
discretion and judgment.
While this would facially appear to be an employer-friendly change,
great caution must be used before designating an employee as exempt under
the computer employee exception, which has been one of the most misused
exemptions, and one of the mistakes most commonly caught by the Department
of Labor. In practice, the
computer exemption does not generally apply to computer technicians or
other low-level employees who work with computers, but only to “computer
systems analysts, computer programmers, software engineers” and other
similarly skilled positions.
However, many persons who might be exempt under this exemption
could likely be properly exempt from overtime pay under the administrative
or professional exemptions.
III. The Revised Salary Deduction Rules
One of the most expensive (and
common) overtime mistakes made by employers is the improper deduction from
a salaried employee’s pay. An
improper deduction could risk losing the exemption for that employee, and
potentially, for all other employees with similar duties – mistakes such
as these have been the basis for several multi-million dollar
lawsuits. The Department of
Labor, in its new rules, set out to clarify the confusing rules regarding
deductions from salary.
A. Legitimate Deductions
Under the new rules, an employer may deduct from an employee’s salary in a number of specific circumstances (the deductions must be for a full day – half-day deductions are not allowed). The most important allowed deductions are listed below:
- Where the employee is absent from work for one or more full days for personal reasons (but not for sickness or disability).
- Where the employee is absent for sickness or disability if the deduction is made in accord with a bona fide plan, practice, or policy that provides compensation for salary lost because of that absence (for example, a short-term disability policy).
- Where the employee is absent for jury duty, a judicial subpoena, or temporary military fees, the employer can offset the employee’s salary by the monies paid to the employee for his or her service.
- Where the employee has violated a safety rule of major significance.
- Where the employee has been placed on unpaid suspension for violation of workplace conduct rules (for example, sexual harassment rules).
B. Safe
Harbor Provision In light
of the new rules, it is an ideal time to review overtime policies and
procedures and to ensure that employees are correctly classified under the
new regulations according to their actual duties. It is also particularly important
to institute a written policy that prohibits improper deductions from
salary and provides for a complaint mechanism, so as to take advantage of
the safe harbor provisions in the new rules. Doing so will
minimize potential liability for overtime misclassifications, and help in
avoiding Department of Labor wage and hour investigations and costly
litigation.
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information presented at this site should not be construed to be formal
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relationship.
The new rules also add a
revised “safe harbor”
provision. Notably, improper
deductions from salary will not result in loss of the overtime exemption
(as was often previously the case), if the employer reimburses the
employees for any such improper deduction. To take full advantage of this
safe harbor, an employer must have a clearly communicated policy that
prohibits the improper pay deductions from salary. This policy must include a
complaint mechanism. The
employee must be reimbursed for any improper deduction and the employer
must make a good faith effort to comply in the future with the deduction
from salary requirements. A written policy, either in an employee handbook
or in other written form, will satisfy this requirement.