Originally published Spring 2004
The United States Department of Labor ("DOL") recently issued new regulations to the Fair Labor Standards Act ("FLSA") that alter the salary and duties tests used to determine who is eligible to receive overtime pay. These long awaited changes, currently scheduled to take effect on August 23, 2004, are a scaled back version of the original changes proposed by the DOL one year ago.
Under the new rules, the new minimum salary level for a white-collar worker to be classified as exempt is $455 per week or $23,660 per year. Accordingly, anyone earning less than the minimum salary level must be paid time and a half overtime wages under the FLSA. The amended regulations also establish a separate test for those earning $100,000 or more per year, by requiring such employees to customarily and regularly perform at least one exempt duty in order to be considered exempt from the overtime requirements.
The new overtime rules also created a new standard duties test to determine whether employees earning between $23,660 and $100,000 per year are entitled to overtime. This revised duties test replaces the long and short duties tests used under the existing rules scheme. Among other things, the new standard duties test imposes new requirements on the executive and administrative exemptions and offers more examples than its predecessor as to what jobs might qualify for an exemption.
Amendments to the docking rules and the so-called "window of correction" are also included in the amended regulations. According to the new rules, employers will now be able to dock the pay of exempt employees who violate certain company rules without facing the risk that those employees would lose their exempt status. The existing rules only permit employers to dock exempt employees in weekly intervals, while the new rules will now enable employers to suspend exempt employees a day’s pay or more for engaging in sexual harassment or violating safety procedures. Likewise, under the new rules, the so-called "window of correction" available to employers to correct improper deductions or payments has been expanded.
The new regulations have always been controversial and it is not expected that the controversy will end soon. Experts anticipate that Congress may yet still attempt to thwart their implementation and/or that the new rules will face numerous litigation challenges. In any event, the new rules have, at the very least, caused employers to revisit the important issue of determining who is eligible for overtime pay.
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