Time is Money

CAVING IN TO A STORM of criticism in an election year, the U.S. Labor Department (DOL), Washington, D.C., has announced new rules that will change overtime pay coverage for hundreds of thousands of workers under the Fair Labor Standards Act (FLSA).

“Workers win. The department's new rules guarantee and strengthen overtime rights for more American workers than ever before,” says Secretary of Labor Elaine L. Chao. “We do not expect that many people will lose their overtime.”

The regulations had not been meaningfully updated in 50 years. Business groups have sought changes for at least a decade, while labor interests have been skeptical about efforts to tinker with coverage.

When the administration first proposed new overtime rules one year ago, the Labor Department speculated that some 600,000 workers would lose eligibility for overtime pay. Critics accused the administration of purposely underestimating the impact, and predicted that 8 million workers would be ineligible. The draft proposal drew some 75,000 e-mail messages and letters. When Chao announced the final regulations on April 20, she said the new rules, which take effect in mid-August, would exclude slightly more than 100,000 workers from coverage. While critics insist that Chao continues to play down the number of workers who will lose eligibility, general agreement exists that fewer workers would be excluded from overtime pay under the new rules.

Under the FLSA, employees in the United States are entitled to be paid at least the federal minimum wage for all hours worked and time-and-a-half pay for all hours worked more than 40 hours a week. Coverage excludes salaried workers who perform certain executive, administrative or professional functions and outside sales employees. The 50-year-old regulations guaranteed overtime pay only to workers earning less than $8,060 annually. The new rules assure overtime to workers earning up to $23,660. The Labor Department says this adjustment adds coverage for 1.3 million new workers.

The new rules change the tests for determining who may receive overtime pay, depending on how much managerial responsibility or professional training workers have. Exempt employees are not entitled to overtime pay.

To qualify for the executive exemption, the employee must:

  • Be compensated on a salary basis;

  • Manage the enterprise or a subdivision of the enterprise;

  • Direct the work of at least two other employees; and

  • Have either the power to hire and fire or considerable influence over hiring, firing, promotion and similar decisions.

Administrative employees are exempt if they are compensated with a salary or by fee; perform office or nonmanual work directly related to management, operations or customer service; and exercise discretion and independent judgment on significant matters.

A professional employee is exempt if he is compensated with a salary to perform work requiring advanced knowledge in a field of science or learning where such knowledge is customarily acquired by a prolonged course of instruction.

For more information on the FLSA, visit the DOL Web site at www.wagehour.dol.gov or contact an attorney who has experience in employment matters.