Power of Attorney - August 2004

New Overtime Regulations Benign

But Still Require Employers’ Attention

by Kelly Evans, David Tanner

On April 20, 2004, the U.S. Department of Labor issued the first changes to the Fair Labor Standards Act’s overtime regulations in over 50 years. In an apparent bow to political pressure and an effort to avoid an election-year firestorm, the final regulations are significantly watered-down and benign compared to those the Department of Labor proposed in 2003. The new regulations do not ease the administrative burden on employers or reduce exposure to litigation – two of the purported reasons for the new regulations. They do not strip significant numbers of employees of overtime protection and may actually increase the number of eligible employees.

New "White Collar" Definitions

Under the new regulations, an employee may be exempt from receiving overtime as an executive, administrative or professional employee if the employee is paid $455 per week on a "salary basis" and meets the "primary duties" test of such a position. The primary-duties tests for exemption as an administrative or executive employee are largely unchanged from the previous regulations. The most significant impact of the new regulations on the administrative or executive exemption is the raising of the minimum weekly salary from $155 to $455. Lower-paid managerial employees, such as retail or restaurant supervisors, will now be eligible for overtime unless they are paid at least $455 per week ($23,660 per year).

The test for exemption as a professional employee changed significantly. To qualify as an exempt professional, the employee must have the primary duty of performing non-manual work requiring advanced knowledge in a field of science or learning, regardless of the source of that knowledge. Employees possessing advanced knowledge, regardless of its source, may now qualify as exempt when they would not have been exempt under the previous regulations.

"Salary Basis" Test

To qualify for a white-collar exemption, an employee must generally be paid a predetermined amount on a "salary basis" each pay period, not subject to reduction due to the quality of work or hours worked. Deductions of pay must be for a day or longer – hourly deductions remain prohibited by the new regulations. The new regulations now allow deductions of a day or longer for disciplinary suspensions and certain other limited reasons.

Computer and Outside Sales Employees

The exemptions for computer and outside sales employees have also changed. Computer employees may now be exempt if paid $455 per week in salary or $27.63 an hour. Outside sales employees are no longer limited to spending only 20 percent of their time on duties unrelated to outside sales.

Certain Employees Guaranteed Overtime Pay

The new overtime regulations guarantee "blue-collar" and "first-responder" employees overtime pay. A blue-collar employee is one who performs routine manual and physical work and gains skills through apprenticeships and on-the-job training. Such employees include non-management employees, mechanics, plumbers, craftsmen and construction workers. First-responder employees are those who: prevent, control or extinguish fires; rescue fire, crime or accident victims; prevent crimes; pursue, restrain and abduct suspects; or perform similar work. Such employees include firefighters, police officers, park rangers and paramedics.

The Fair Labor Standards Act’s provisions (including the new overtime regulations) provide minimum standards that cannot be waived or reduced. But employees may enjoy greater rights from other sources, including state law or union contracts. It is imperative that employers act consistent with an employee’s overtime rights, regardless of the source of those rights. The new overtime regulations may create employee-relations problems and potential litigation if not carefully managed and accurately implemented. The new regulations go into effect August 23, 2004.

Kelly Evans, David Tanner
Kelly Evans is a partner with the Las Vegas office of Snell & Wilmer. David Tanner is an employment law attorney with the firm.