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Environs around the HR water cooler: confusion and concern

Interpreting new federal OT regs challenges businesses

“Good news! Our jobs interpreting the new rule to figure out who doesn’t get overtime pay entitles us to overtime pay!” said one desk worker to another in a Cagle Cartoon.

For human resource managers, this humorous example of interpreting the new federal overtime regulations that went into effect August 23 is not very funny. Recently promulgated by the Bush Administration, the U.S. Department of Labor’s (DOL) “white-collar regulations,” which could affect the overtime eligibility of 6.7 million employees, call for sweeping changes in the determination of overtime pay for “exempt” employees.

“There’s still confusion over how to determine what a supervisor’s primary duty is since there’s no percentage test set forth in the regs themselves or the department’s commentary accompanying the rules,” said Ann Bowden-Hollis, an attorney specializing in employment law with Butler, Snow, O’Mara, Stevens and Cannada, PLLC, in Jackson.

Bill Jones of the DOL’s Wage and Hour Division in Jackson said his office is getting “a lot of calls, especially on the changes in the regulation 541 exemption.”

Employees must meet three tests to be exempt from overtime: salary, salary-basis and “duties” tests. The most striking regulation change is that the old rule for the salary test required an employee to earn $155 per week. The new rule changes that amount to $455 per week. If an employee makes less than the weekly amount, the employer must either boost the employee’s wages or begin paying overtime.

“Concern continues with the need to increase some supervisors’ pay by several thousand dollars a year to meet the new salary test for exempt employees,” said Mike Fitzgerald, also an employment attorney with Butler Snow. “While publicity about the new white-collar exemption rules may have downplayed the impact on employers of the new $455 per week salary requirement, employers faced with actual wage hikes are seriously affected. They face the often-difficult choice of raising the annual pay of a lower level supervisor by $5,000 or $6,000 in some instances, or putting that supervisor on an hourly basis. Because that supervisor would then be entitled to overtime for all hours worked over 40 in a week, there will be a tendency to limit the hours, which may reduce the supervisor’s effectiveness, and may start a domino effect.”

The old and the new

The old and new rules of the salary-basis test are basically the same: an employee’s salary must be fixed on a weekly basis with no deductions for partial-day absences; the employee’s pay cannot fluctuate based on the number of hours worked.

The new regulations contain limited “permissible deductions” that can reduce an exempt employee’s salary for occasions such as safety-related suspensions and personal days. These permissible deductions remain part of the regulations, and the DOL added two permissible deductions: for full-day disciplinary suspensions and for unpaid medical leave under the Family and Medical Leave Act.

Under the new rules, the primary duty of executive employees must be to manage a company or recognized department. They must supervise at least two employees and be able to hire and terminate employees or recommend such actions that are given “particular weight.”

Also, professional employees’ primary duties must consist of work that requires advanced knowledge, is intellectual in nature, and requires consistent discretion and judgment. This rule would apply to professionals working in a field of science or learning, such as accountants, dental hygienists, doctors, lawyers, registered nurses and other licensed professionals.

Administrative employees must perform office or non-manual labor that directly relates to the management or general business operations of the employer. Their jobs must require discretion and independent judgment on significant matters. Insurance claims adjustors, financial advisors and human resource managers fall under this category.

“(The new regs) have not created any issues with us, as our minimums for all our exempt jobs were above the requirements of the new law,” said Billy Sims, vice president of human resources for Southern Farm Bureau Life Insurance Company in Jackson. “Our jobs that were in the gray area do seem to meet the requirements for exempt jobs. Most of our jobs seem pretty clear cut as to the exempt and non-exempt status.

“I think as the law is put into effect and is challenged by employees, companies will be able to fine-tune any unforeseen conflicts in their jobs.”

Contact MBJ contributing writer Lynne W. Jeter at lwjeter@yahoo.com.

About Lynne W. Jeter

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