• Department of Labor Clarifies Wage and Hour Law Overtime Exemptions
  • June 4, 2004
  • Law Firm: Squire, Sanders & Dempsey L.L.P. - Cleveland Office
  • Promising to clarify and bring outdated wage and hour regulations into the 21st century, the Department of Labor (DOL) this week issued long-awaited final rules for changing the Fair Labor Standards Act's overtime exemption rules.

    The final rules, which include 277 pages of explanation, came in the wake of DOL's consideration of more than 75,000 comments from a wide variety of employees, employers, trade and professional associations, and unions.

    DOL estimates that the changes will strengthen overtime protection for 6.7 million workers. DOL says that clarifying the outdated regulatory language will help employers better understand their obligations and comply with the law.

    Key aspects of the new rules which will be helpful to employers include:

    • Replacing the 80 percent requirement of sales activity outside the office for outside salespersons with a "primary duty" standard.
    • Permitting deductions from exempt employees' salaries for full-day, unpaid disciplinary suspensions. These suspensions must be applicable to all employees and imposed pursuant to a written policy, such as a policy prohibiting sexual harassment or workplace violence. With few exceptions, the current regulations permit such deductions only for week-long suspensions.
    • Protecting an employer from destroying an employee's exempt status where the employer has a clearly communicated policy that prohibits improper pay deductions and includes a complaint mechanism to correct any mistaken deductions.

    Other significant changes include:

    • Deeming highly paid executives exempt so long as they are guaranteed $100,000 per year (with at least $455 per week paid on a salary basis) and meet one of the duties elements of any of the managerial, administrative or professional exemptions.
    • Increasing the minimum weekly pay salaried workers must earn to qualify as "white collar" exempt employees from $156 to $455.
    • Modifying the most common exemptions:
      • Executive: Requires exempt executives to have actual authority to hire or fire, or have their recommendations related to hiring, firing, promotion or other change of status given particular weight. Currently, the regulations require only that the executive manage the enterprise (or recognized department thereof) and direct the work of two or more employees.
      • Administrative: Adds the new requirement that the employee must exercise not only "discretion and independent judgment" but also "discretion and judgment with respect to matters of significance." "Matters of significance" refer to the level of importance of the work performed such as developing policies, carrying out major assignments, and providing consultation or expert advice to management.
      • Professional: Clarifies that employees exempt under the professional exemption may include the professions of engineering; various types of physical, chemical and biological sciences; dental hygiene; theology; degreed culinary arts; pharmacy; and similar occupations as distinguished from mechanical arts or skilled trades such as repair technicians.

    These new rules do not become effective until 120 days after they are published in the Federal Register, which should occur shortly. As the effective date approaches, employers should audit their compensation practices, both to ensure continued compliance under the modified standards (particularly with respect to lower-level salaried employees) and to determine whether any of the changes could prove advantageous. This might include updating disciplinary policies to provide for suspensions of salaried employees or developing a complaint procedure for correcting improper deductions.

    The DOL's final rules do not preempt individual state laws containing more restrictive overtime exemptions.