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  Who will still get overtime pay?
Who will still get overtime pay?
According to the U.S. Department of Labor, the new rules will help an additional 6.7 million American workers by guaranteeing overtime pay protection; however, the Economic Policy Institute estimates that 6 to 8 million American workers will lose the overtime protection they currently enjoy.
 

August 23, 2004 will become an important day in the history of overtime pay in the United States. That is the day that new U.S. Department of Labor regulations take effect, governing who is eligible for overtime pay. This change could potentially impact as many as 15 million American workers.

Background
In 1938, Congress passed the Fair Labor Standards Act (FLSA). The FLSA regulated child labor, set a minimum hourly wage, and required companies to pay certain employees overtime if they worked more than a given number of hours (44 then, 40 currently) in a workweek. It is interesting to note that Congress included these overtime requirements as a means to stimulate the hiring of additional employees by businesses. By requiring overtime pay for existing workers, Congress believed it would drive businesses to hire more new workers at regular wages.

Since 1938, the Fair Labor Standards Act has been amended several times most recently in 1990 with a change covering computer-related occupations. However, the last time the salary levels in the FLSA were changed was in 1975, during the Carter administration.

The Basics
The Fair Labor Standards Act establishes two categories of employees - exempt and non-exempt. "Exempt" employees are those who are not covered by (i.e., are exempt from) the overtime provisions of the FLSA while "nonexempt" employees (including blue-collar workers) are covered.

The FLSA requires employers to pay their nonexempt workers overtime pay at the rate of one and one-half times their regular hourly rate for every hour worked in excess of 40 hours in a given workweek.

Current Provisions (through August 22, 2004)
There are three basic FLSA guidelines:

1. The salary basis test - paying an employee a salary (as opposed to an hourly wage) is the first measure of whether an employee is deemed exempt.

2. The salary level test - paying an employee at least $155/week ($8,060/year) is the second measure of whether an employee is deemed exempt; paying an employee below this amount automatically makes the employee non-exempt.

3. The duties tests - whether an employee meets the definition of an executive, administrative, professional, outside sales, or computer professional is the third measure of whether an employee is deemed exempt. There are five types of exempt duties: executive, administrative, professional, outside sales, and computer professional.


New Provisions as of August 23, 2004
There will continue to be three basic FLSA tests:

1. The salary basis test - Paying an employee a salary (as opposed to an hourly wage) is still the first measure of whether an employee is deemed exempt. The salary basis will not change - exempt employees will still be required to be paid a salary rather than hourly wage.

2. The salary level test - The salary level test provides an initial determination of whether a job is non-exempt based on the job's compensation. The base limit will increase from $155/week ($8,060/year) to $455/week ($23,660/year), which means that anyone paid less than $455/week (or less than $27.63/hour, if a computer professional) will be presumed to be non-exempt, regardless of whether the employee "passes" the duties test. In addition, any employee paid over $100,000/year will be considered "highly compensated" and will be deemed exempt if the employee "customarily and regularly" performs one or more exempt duties.

3. The duties tests - In addition to pay, the specific duties of a job may determine that the job is exempt from FLSA. There are now six types of exempt duties: executive, administrative, learned professional, creative professional, outside sales, and computer professional. The specific tests for each of these duties have been redefined.

The duties tests will still require a great deal of interpretation on the part of Human Resources professionals. Although the U.S. Department of Labor has provided new definitions, there are still many questions about ambiguities that will need to be resolved over time.

According to a June survey of compensation professionals reported by WorldatWork, many organizations are not fully prepared for the new FLSA regulations. In fact, 20% do not expect to be ready in time for the August 23rd effective date. What does Salary.com recommend that companies do to meet the new requirements?

Recommendations for Companies
1. Implement exempt/non-exempt status based on job content - those involved in manual labor and other "blue collar" work as well as "first responders" (police, fire, EMTs and other emergency personnel) are considered non-exempt.

2. Implement exempt/non-exempt status based on salary levels - those making less than $23,660/year are non-exempt and those making more than $100,000/year (who "customarily and regularly" perform one or more exempt duties) are exempt.

3. Implement the computer professional test - programmers, programmer/analysts and software engineers can be exempt if they earn more than $27.63/hour ($57,470/year). However, employees engaged in the manufacture or repair of computer hardware and related equipment are non-exempt.

4. Be cautious before changing the status of non-exempt employees - use the duties tests, then check with your company's general counsel before making any changes that will have a negative impact on employees.

5. Remember, if your state has more strict regulations regarding the payment of overtime or the preservation of overtime eligibility, the state law will preempt the FLSA changes.

Recommendations for Employees
If you are told that you will become "exempt" (and therefore ineligible for overtime) after August 23rd, you should ask your Human Resources Representative:

1. Why?
2. How was the decision made?
3. Under which Fair Labor Standards Act was I classified exempt?

Your company's Human Resources Representative should be knowledgeable about the FLSA or he/she should be able to direct you to someone who is. Your HR department will be your first line of protection to ensure you are treated fairly and classified appropriately.

What to expect
There does not appear to be a consensus on who will benefit and who will be hurt by these new rules. According to the U.S. Department of Labor, the new rules will help an additional 6.7 million American workers by guaranteeing overtime pay protection; however, the Economic Policy Institute estimates that 6 to 8 million American workers will lose the overtime protection they currently enjoy.

Although opponents of the new regulations have not yet convinced Congress to block them, individual states have begun to do so. Thusfar, Illinois has enacted legislation to protect (through "grandfathering") those currently eligible to receive overtime and Minnesota is considering doing the same.

In a significant move, the U.S. Senate voted 99 to 0 to protect the right to overtime pay for 56 specific jobs and job categories. The U.S. House will consider the bill after it convenes following the summer recess. The jobs that the Senate wants to protect, along with their associated average national salaries, are:

Job Title
Salary.com Job Title
Average Salary
Any worker earning less than $23,660/year
-
-
Any worker paid on an hourly basis
-
-
Blue collar workers
-
-
Any worker paid overtime under a collective bargaining agreement
-
-
Nurse midwives Certified Nurse Midwife
Chefs Chef - Executive
Outside sales employees Sales Representative II
Computer programmers Programmer II
Police sergeants Police Sergeant
Journalists Technical Writer II
Registered nurses Staff Nurse - RN
Team leaders Production Team Leader II
Inside sales employees Inside Technical Sales
Teachers Teacher - High School
Athletic trainers Head Athletic Trainer
Police officers Police Patrol Officer
Stationary engineers Stationary Engineer
Plumbers Plumber II
Mechanics Mechanic Technician
Carpenters Carpenter II
Welders Welder II
Painters Painter II
Sheet metal workers Sheetmetal Mechanic II
Licensed practical nurses Licensed Practical Nurse
Assistant retail managers Assistant Retail Store Manager
Paramedics Paramedic
Cooks Cook
Route drivers Truck Driver - Light
Nursery school teachers Day Care Center Teacher
Day care workers Day Care Center Teacher
Laborers General Laborer
Maintenance employees Janitor
Oil and gas pipeline workers
-
-
Oil and gas field workers
-
-
Oil and gas platform workers
-
-
Refinery workers
-
-
Steel workers
-
-
Shipyard and ship scrapping workers
-
-
Technicians
-
-
Firefighters
-
-
Fire sergeants
-
-
Emergency medical technicians
-
-
Waste disposal workers
-
-
Production line employees
-
-
Construction employees
-
-
Iron workers
-
-
Craftsmen
-
-
Operating engineers
-
-
Cement masons
-
-
Stone and brick masons
-
-
Utility workers
-
-
Longshoremen
-
-
Boilermakers
-
-
Funeral directors
-
-
Grocery store managers
-
-
Financial services industry workers
-
-

In the meantime, the Department of Labor is estimating that the first-year costs of implementing the new regulations will be $1.1 billion dollars. American businesses will be expected to shoulder these costs.

Stay tuned; this is starting to get interesting!

For more information on the new FLSA rules, please see visit the Department of Labor's Website at: http:// www.dol.gov/fairpay/


- Joseph B. Kilmartin, Jr., CCP, is a Director of Compensation with Salary.com. He has over 27 years experience as a consultant and corporate executive advising companies on compensation issues including how the Fair Labor Standards Act (FLSA) impacts those businesses.

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