• U. S. Department Of Labor Proposes New Overtime Rules; 90-Day Public Comment And Review Period Commences
  • May 6, 2003
  • Law Firm: Orrick, Herrington & Sutcliffe LLP - San Francisco Office
  • On March 31, the Wage-and-Hour Division of the United States Department of Labor ("DOL") is expected to publish proposed regulations significantly altering the test for determining which workers are eligible for time-and-a-half overtime pay under the Fair Labor Standards Act ("FLSA"). The new rules will then be subject to a 90-day comment and review period.

    New Salary Requirement And Special Rule For Highly Compensated Employees
    Under the new rules, any employee making less than $425 per week would be eligible for overtime. The current threshold for automatic eligibility is $155 per week. According to the DOL, this change alone would increase the number of employees eligible for overtime by some 1.3 million low-wage workers.

    The proposed regulations also include a rule that any employee performing office or non-manual work who is guaranteed a total annual compensation of $65,000 or more is exempt if the employee performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee. Notably, commissions and non-discretionary bonuses paid on at least monthly would be included in the $65,000 annual compensation requirement.

    New "Duties" Test
    In addition to raising the salary threshold, the new regulations would also change the current "duties" test for determining whether employees are exempt. The proposed regulations utilize a single standard duties test in lieu of the separate "long" and "short" duties tests.

      Executive Exemption
      Executive employees would be exempt under the new rules if they (1) have a primary duty of managing the enterprise or a customarily recognized department or subdivision, (2) customarily and regularly supervise the work of two or more employees; and (3) have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations regarding hiring, firing, advancement, promotion or other status changes. Notably, the DOL proposal does not include a requirement that the employee customarily and regularly exercise independent judgment and discretion.

      Administrative Exemption
      With respect to the administrative exemption, the new regulations retain the requirement that an employee perform office or non-manual work related to the management or general business operations of the employer or the employer's customers. The proposed regulations, however, drop the requirement that an employee "customarily and regularly exercises discretion and independent judgment" and instead ask whether the employee holds a "position of responsibility" with the employer. A "position of responsibility" is defined as (1) work of substantial importance, or (2) work that requires a high level of skill or training.

      Professional Exemption
      For professional employees, the proposed test is whether the employee's primary duty requires advanced knowledge in a field of science or learning customarily acquired by a course of specialized instruction, but which also may be acquired by an equivalent combination of intellectual instruction and work experience. Thus, the proposed rules eliminate the requirement that the course of instruction be college or graduate school and recognize military duty, technical school or work experience. According to the DOL, the focus would be "on the knowledge of the employee and how that knowledge is used in everyday work, not on the educational path followed to obtain that knowledge."

      Computer Employees Exemption
      The only substantive change proposed for this exemption is deletion of the requirement that a computer employee must consistently exercise discretion and independent judgment.

      Outside Sales Exemption
      The proposed regulations eliminate the restriction that an outside sales employee may not spend more than 20 percent of his or her time performing exempt work, replacing that requirement with one that the outside sales employee's primary duty must be to make sales or obtain orders or contracts for services or the use of facilities. The DOL has maintained the requirement, however, that the employee must customarily and regularly work away from the employer's place of business.

    Controversy Expected Over Changes
    It is expected that the regulations will generate a great deal of controversy, generally meeting with trepidation by unions and employee advocates who fear that the proposals would lead to longer work weeks and lower pay. Management groups have generally welcomed the proposed changes, which replace outdated job descriptions and salary levels requiring overtime pay for already highly paid professionals.

    The final regulations┬┐which do not require congressional approval┬┐would not likely take effect until late this year or early 2004. The new regulations will not, however, lower the salary threshold or change exemption tests where, as in California, state laws and regulations are more protective of employees.