• Is Your Company in Compliance with the New Overtime Regulations?
  • September 12, 2004 | Author: James P. Thomas
  • Law Firm: Pepper Hamilton LLP - Pittsburgh Office
  • The U.S. Department of Labor's new regulations for "white collar" overtime exemptions became effective on August 23, 2004. Under the new regulations, your company may now be required to pay overtime to "white collar" employees who were previously exempt. On the other hand, some employees may actually lose their eligibility for overtime pay. If you have not already done so, it is important that you promptly review your company's payroll practices for compliance with the new regulations. Any mistake, whether it is not paying overtime to an employee who is entitled to it or vice-versa, can be costly, especially if not promptly discovered and corrected. The following is an overview of some of the significant changes in the new regulations that may affect your employees.

    • Higher minimum salary requirement. An employee must now earn a salary of at least $455 per week to qualify for the executive, administrative or professional overtime exemption. Under the old regulations, an employee was only required to earn a salary of $250 per week.
    • New Highly Compensated Employee Exemption. The new regulations create an entirely new exemption for "highly compensated" employees earning a minimum of $100,000 annually. To qualify for this exemption, the employee's primary duties must consist of office or non-manual work and the employee must customarily and regularly perform at least one of the exempt duties of an executive, administrative or professional employee. In addition, a minimum of $455 per week of the employee's compensation must be paid on a salary or fee basis. The balance of the $100,000 may be in the form of commissions, non-discretionary bonuses and other non-discretionary cash compensation. If an employee's compensation falls short of $100,000, the employer may make up the difference with a lump sum payment within one month of the end of the year in order to preserve the exemption.
    • Outside Sales Exemption Expanded. To qualify for the outside sales exemption under the new regulations, it is only necessary that the employee's primary duty be sales or solicitation. Previously, an employee was disqualified under this exemption if more than 20 percent of the employee's time was spent in work unrelated to outside sales.
    • Permissible Salary Deductions for Policy Violations Expanded. Under the new regulations, an employer may suspend an exempt employee without pay for violations of written workplace conduct rules, such as workplace violence or sexual harassment. Under the old regulations, an exempt employee could not be suspended without pay for less than one week, except for "infractions of safety rules of major significance."
    • New Safe Harbor Provision. Under the new regulations, an employer with a clearly communicated policy, including a complaint procedure addressing how employees are to be paid, will not lose the overtime exemption if the affected employee is promptly reimbursed for any improper deductions and the employer makes a good faith effort to comply with the regulations going forward.

    These are just a few of the more significant changes in the new "white collar" overtime regulations. Even these few examples, however, highlight the importance of reviewing your company's payroll practices to ensure compliance with the new regulations, as well as the importance of having clearly written and communicated workplace policies with a complaint procedure. Such policies may prevent an employer from incurring substantial losses under the new overtime regulations, as well as in other areas such as sexual harassment and discrimination.