U.S DEPARTMENT OF LABOR PROPOSES NEW OVERTIME REGULATIONS

April 15, 2003

Employers should be aware that the United States Department of Labor recently issued proposed changes to the Fair Labor Standards Act's overtime "white collar" exemptions. The "white collar" exemptions apply to those employees who meet the definition of executive, administrative, professional, and outside sales employees. Among the proposed changes are the following significant modifications:

The DOL's proposed regulations eliminate the "short" and "long" tests for evaluating white collar employees, which previously evaluated employees who earned more than $250 per week less stringently than those who made less than that threshold. The DOL has proposed replacing those tests, which many view as outdated and confusing, with one standard test for the categories of executive, administrative, professional, and outside sales employees. The proposed regulations raise the minimum weekly salary for exempt employees from $155 to $425.

With respect to executive employees, the proposed changes streamline the "duties" test to apply the exemption only to those employees with the authority to hire or fire employees, or recommend hiring or firing employees (with recommendations being given particular weight). The current requirements that exempt executives manage the enterprise (or a recognized department or subdivision of the enterprise) and regularly direct the work of two or more other employees will remain intact.

Regarding administrative employees, the proposed changes alter the duties test by mandating that the exempt employee hold a position of responsibility. The proposed regulations define the term "position of responsibility" as one where the employee either performs work of substantial importance, or performs work that requires a high level of skill or training. The revised rules preserve the current requirement that the exempt administrative employee's primary duty be performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers. However, the proposed changes have jettisoned the requirement that administrative employees spend less than 20%, or 40% in retail or service establishments, performing duties not directly related to exempt work.

The DOL has recommended changing the duties test for learned professional employees to require that their primary duty be performing office or non-manual work requiring knowledge of an advanced type of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, but which also may be acquired by alternative means such as an equivalent combination of intellectual instruction and work experience. The proposed changes include the stipulation that the knowledge can be acquired by an alternative means.

With respect to creative professionals, the proposed regulations have amended the duties test to include the term "originality"; that is, the primary duties test would require that the employee perform work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Computer professionals, under the proposed changes, would qualify for the overtime exemption if the employee earns $27.63 per hour, or $425 per week.

It should be noted that the proposed regulations do not alter the FLSA's current pronouncement that outside sales persons need not meet a minimum weekly salary to qualify for their exemption. However, the duties test for outside salespersons has been altered to abandon the requirement that outside salespersons must not perform nonexempt work for more than 20% of the hours worked in a workweek by the employer's non-sales employees who perform the same or similar nonexempt work. The duties test otherwise remains the same-that is, the employee must be customarily and regularly engaged away from the employer's place of business, and his primary duty must consist of making sales or obtaining orders or contracts for services or the use of facilities for which the client or customer will pay consideration.

The DOL's proposed changes would also allow deductions from exempt employees' salaries for full-day absences occasioned by disciplinary issues. However, the DOL has not proposed changes to the current prohibition against salary deductions for partial-day absences.

As always, we will keep you updated on any new developments with respect to these proposed regulations.