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New govt. rules redefine who’s eligible for overtime pay

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in Leaders & Managers,Management Training

You may have heard that the federal government rewrote the rules in 2004 that define which white-collar employees are eligible to earn overtime pay. Here's a primer to help you answer employees' questions:

The nation's main wage law, the Fair Labor Standards Act (FLSA), says employees who work more than 40 hours in a workweek must be paid time-and-a-half overtime pay.

But certain employees are exempt from the FLSA, meaning they're not eligible for overtime pay. That's because they're paid on a salary basis for the totality of the work they do, not the time they spend doing it.

Who's exempt? The FLSA says certain "executive," "professional" and "administrative" employees can be considered exempt. But the FLSA originally defined those terms in the 1940s, and the difficulty in trying to apply those definitions to today's workplace has sparked much confusion (and many lawsuits).

Here are the new definitions:

Executive: Primary duty must be managing a business or department; must direct at least two employees and have hire/fire authority (or their hire/fire suggestions carry "particular weight").

Administrative: Primary duty must be performing nonmanual or office work that's related to the employer's management or operations; job must involve exercising "discretion and independent judgment."

Professional: Primary duty must be performing nonmanual work requiring advanced knowledge, defined as work that is "predominantly intellectual in character" and requires discretion and independent judgment.

The rules also establish exemption definitions for certain outside sales employees and computer specialists.

Salary threshold: Employees who meet one of those duty definitions must pass one more "test" to be considered exempt from overtime pay: They must earn at least $455 per week ($23,660 a year). Anyone who earns less will automatically be eligible for overtime, regardless of his or her job duties.

But the new rules also say "highly compensated" employees aren't eligible to earn overtime pay. That means, essentially, anyone who earns more than $100,000 a year and performs one of the duties cited above cannot earn overtime.

Bottom-line impact: The new rules will cause some white-collar employees, mostly lower-paid ones, to become eligible for overtime pay for the first time. They will also cause far fewer employees, mostly those making more than $100,000 who still earn overtime, to lose their eligibility for overtime pay.

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