Labor Department Overhauled Overtime Regulations
The Department of Labor issued new overtime regulations for the
first time in 50 years that became effective in 2004. The Fair
Labor Standards Act (the "Act") requires that overtime be paid for
non-exempt employees at a rate of time and half regular pay for all
hours worked over 40 hours in a week.
The Act includes several exemptions. Exempt employees are those
who need not be paid overtime. One of the more common sets of
exemptions is the so-called "white collar" exemption for employees
classified as executive, administrative, or professional employees.
Whether an employee is classified as exempt is not solely dictated
by whether they are paid by the hour or paid a salary. Just because
you pay an employee a salary does not make that employee exempt
from overtime pay.
Under the existing regulations, the white-collar exemptions are
governed by three tests: salary basis, salary level and duties.
Each of these three tests must be satisfied for an employee to be
declared exempt.
Salary Test
Under the new regulations, the salary test is increased from
$170/week ($7,440 per year) to $455/week ($23,660 per year).
Duties Test
Under the existing regulations, the so-called "duties" tests
are complicated and include both a short and long test. These
generally evaluate the type of work being performed, whether it is
more managerial or supervisory in scope and degree, whether
discretion and independent judgment are exercised, whether an
advanced degree is necessary, and similar concerns related to
determining whether the employee is a "white collar" worker.
Under the new regulations, the "duties" tests are still
complicated. Common concepts include managing or performing work
requiring advanced knowledge, exercising discretion or independent
judgment, supervising 2 or more employees, and having authority to
make substantive decisions such as hiring or firing
recommendations.
It is important to understand that no definite conclusions can
be drawn simply by reference to job titles or industries. In wage
and hour law, job titles and descriptions are not controlling. The
Department of Labor will look at the actual jobs being
performed.
Possibly not eligible for overtime under the new regulations
Certain classes of employees may be at risk of having their
status adjusted now to be exempt. These include insurance adjusters
and employees in the financial services industry who will all
probably qualify for the administrative employee exemption.
A number of employees now eligible for overtime may lose their
eligibility by adoption of a new "highly compensated" employee
exemption. This covers those making $100,000 or more who perform
office work and perform at least one function of an executive,
administrative, or professional employee.
Possibly eligible for overtime under the new regulations
Other classes of employees have been exempted from application
of the white-collar exemptions. These include police officers, fire
fighters, other emergency first responders, park rangers, state
troopers, correctional officers, and parole officers. The final
revised regulations protect military veterans who may have gained
specialized education through their service-related training.
How will regulations affect Arizona?
If the new regulations work as intended, the regulations will
reduce costs associated with wage and hour compliance, thereby
helping small businesses. The old regulations are a patchwork quilt
of outdated rules many of which were first put into place in the
1940s. The new regulations are an attempt to do that and bring the
"white collar" wage and hour exemptions into the 21st Century.
Arizona has a large number of service industry employees. Many of
these will now qualify for overtime, which may not have been
qualified under the prior salary tests. Arizona has a large health
care related industry and a high percentage of military veterans.
Workers in these fields should retain overtime eligibility in most
cases.
Practical advice for any employer or employee
It is never a bad idea for an employer to have its wage and hour
practices audited. Periodic review is the best way to prevent small
problems from becoming major problems, and is an excellent risk
management practice.
If you would like more information, you can contact our
Employment Law group at 602.248.1000 or visit the Department of
Labor's home page, www.dol.gov and click on link to Fair Pay
Overtime Rules.