Over the past few months, the Department of Labor (DOL) and Congress have been working on two separate projects that will revise the Fair Labor Standards Act (FLSA), the federal law that regulates minimum wage and overtime.  The DOL has recently revived efforts to update the regulations governing exemptions from overtime.  At the same time, Congress has been reviewing two bills that would give private sector employers the ability to give compensatory time off to employees in lieu of premium pay for overtime hours worked.  This month’s article provides information on the relevant details and status of these potential new laws.
 
Overtime Exemptions
On March 31, 2003, the DOL published proposed regulations to revise the white-collar overtime exemptions.  These regulations provide that certain executive, administrative, professional and outside salespeople are exempt from being paid overtime.  The exemptions have not been significantly changed since 1949 and both employers and employees have complained over the years that they were out of date and difficult to apply.  By introducing the proposed regulations, the DOL hopes to update and simplify the overtime exemptions so that they are easier to use.  Below is a summary of the most significant changes included in the proposed regulations.

• Duties Tests – To simplify the exemption analysis, the DOL proposes eliminating the long and short duties tests that each of the exemptions currently have in favor of one test for each.  The difference between the long and short duties tests is that employees making less than $250 per week have to meet all of the requirements of the long duties tests to qualify as exempt.  Most employees make close to $250 or more per week since the federal minimum wage is $5.15 per hour and most state minimum wages are even higher thereby making the long duties tests inoperable.
• Salary Basis – The proposed minimum salary required to qualify as exempt is $425 per week up from $155 per week for the long duties tests and $250 per week for the short duties tests.  The new minimum salary requirement also applies to the computer professional exemption.  Previously, employers could only pay computer professionals a minimum hourly rate of $27.63 to qualify as exempt.  Under the proposed regulations, employers will be able to pay computer professional employees either the hourly rate of $27.63 or the $425 weekly salary to qualify for the exemption.
• Salary Deductions – Under the proposed salary basis test, employers could dock an exempt employee’s salary for disciplinary suspensions of a full day or more as a penalty of infractions of workplace conduct rules.  This would include not only absences used as discipline but also absences to conduct investigations of alleged infractions.  Presently, an employer may only dock an exempt employee’s salary for disciplinary suspensions of a day or more for violations of major safety rules such as smoking in an oil refinery.
• Highly Compensated Employees – The DOL is proposing a new test for employees that make more than $65,000 per year.  Under the proposed test, an employee will qualify as exempt if he or she is paid the equivalent of $65,000 per year and performs one or more of the duties described in any of the duties tests for the executive, administrative, professional or outside sales employee exemptions.
• Primary Duty – The proposed duties tests focus on the employee’s primary duty and would no longer require that an employee spend a particular amount of time performing exempt level work.  Under the proposed regulations primary duty is defined as, “the principal, main, major or most important duty that the employee performs.”  Therefore, according to the DOL, as long as an employee’s primary duty satisfies one of the duties tests, he or she will qualify as exempt even if he or she does not spend a majority of his or her time performing the primary duty.
• Executive Exemption – The executive exemption was largely unchanged except for elimination of the requirement that an employee spend 80% or more of his or her time performing exempt-level work or nonexempt work incidental to exempt work.
• Administrative Exemption – The DOL proposes eliminating the requirement that an employee regularly exercise discretion and independent judgment in favor of a requirement that the employee hold a position of responsibility.  This would be defined as, “1. performing work of substantial importance; or 2. performing work requiring a high level of skill or training.”  These new terms are defined in the regulations.
• Professional Exemption – This exemption was not changed significantly.  As with the administrative exemption, the requirement to exercise discretion and independent judgment was eliminated.  Further, to qualify for this exemption, an employee could substitute intellectual instruction and work experience for the requirement to have a particular degree or pursued a prolonged course of study.
• Computer Professional Exemption – This exemption was unchanged except for adding the ability to pay the computer professional on a salary basis of at least $425 per week.
• Outside Sales Employee – This exemption was unchanged except for elimination of the requirement that an employee spend 80% or more of his or her time performing exempt-level work or nonexempt work incidental to exempt work.

At this point, the DOL is not adding any new exemption categories.  However, they acknowledge that employers and employees have requested clarification of the exemption status on several positions such as pilots, athletic trainers, funeral directors, insurance salespersons, loan officers, stock brokers, hotel sales and catering managers and dietary managers in retirement homes.  They have requested interested parties to submit information about the particular job functions of these positions and whether they should be considered exempt or nonexempt so that the DOL can determine whether to include them in the final regulations.

It is important to note that these regulations have only been proposed.  They must still go through a public comment period before they will be finalized and implemented.  Anyone interested in providing feedback to the DOL on these regulations has until June 30, 2003 to submit comments which can be emailed to whd-reg@fenix2.dol-esa.gov.  Comments of 20 pages or less can be faxed to the DOL at (202) 693-1432.  The final regulations will be released sometime after the comment period expires, but it is not known how long it will take to finalize them.

The new regulations, when implemented, will be somewhat simpler to use and more clear than the current ones.  At the same time, the changes are not dramatic.  The biggest changes are the revised duties test for the administrative exemption, the increased amount for the salary basis test and the addition of the highly compensated employee test.  What remains unclear is how much impact these new regulations will have.  The DOL estimates that under the new regulations an additional 1.3 million employees will be classified as nonexempt.  However, many states, such as California, already have exemption tests that are stricter than the ones the DOL is proposing.  So, depending on where you live, unless the states make corresponding changes to their exemption tests, they may not have much of an impact after all.  Watch future newsletters for updates on the status of these regulations.

Compensatory Time Off
While the DOL has been working extra hours reviewing the overtime exemption regulations, Congress has also been busy reviewing bills that would permit private sector employers to give compensatory time off in lieu of overtime pay to employees who work more than 40 hours in a workweek.  Under the bills, H.R. 1119 and S. 317, employers could give employees the option of receiving time off at the rate of one and one-half hours for every hour of overtime worked instead of overtime pay.  The bills would only permit employers to implement a compensatory time off program.  It would not require them to do so if they did not want.  Federal government employees have long been able to receive compensatory time off for overtime hours, but the law did not allow private employers to do the same.

H.R. 1119 was introduced March 6, 2003, by Rep. Judy Biggert (R-Ill).  It is currently being reviewed by the House Committee on Education and the Workforce.  S. 317 was introduced February 5, 2003 by Sen. Judd Gregg (R-NH).  It has been referred to the Senate Committee on Health, Education, Labor, and Pensions.  Updates will be published in the HRCentral Newsletter as they become available.