After much delay and controversy, the Department of Labor's new overtime regulations became the law on August 23, 2004. Under what have been dubbed the new Fair Pay rules, workers earning less than $23,660 per year, or $455 per week, are now guaranteed overtime protection. This is a substantial change from the earlier cutoff of only $7,960 per year. This is now the standard salary test and the old “short” and "long" tests have been eliminated.
On the opposite end of the salary spectrum, employees making more than $100,000 per year who perform office or non-manual work and “customarily and regularly” perform at least one of the duties of an exempt executive, administrative or professional employee, are now exempt.
Other key changes include the following:
- Disciplinary deductions of a full workday for serious conduct violations (such as sexual harassment) can now be made without jeopardizing an employee's exempt status. Previously, employers could only suspend an employee for a full workweek or risk jeopardizing that employee's exempt status.
- The new regulations include a “safe harbor” provision to minimize an employer's potential liability in the event improper deductions are taken from an employee's salary. If an employer has a clearly communicated policy prohibiting improper salary deductions, a complaint procedure for aggrieved employees to follow, makes a good faith commitment to comply in the future, and reimburses employees for improper salary deductions, an employer will not lose the exempt status of an employee whose salary has been improperly docked.
- The new "duties tests" of the white collar exemptions retain the "discretion and independent judgment" language of the old regulations in determining an employee's exempt status, but eliminate the old requirement that exempt employees devote no more than 20% of their work to non-exempt activities.
Employers who have not already done so should promptly review all job classifications to determine if any changes to an employee's exempt status are in order. Employers should also take advantage of the new safe harbor provision by implementing a complaint procedure to follow for employees who believe improper deductions have been taken from their salary.