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FLSA overhaul: What new overtime changes mean to you

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in Employment Law,Firing,Hiring,Human Resources

Your company could be forced to shell out more overtime pay to lower-paid workers under a long-awaited Labor Department modernization of the Fair Labor Standards Act (FLSA). On the bright side, certain higher-paid professionals would no longer be eligible for overtime pay, and the easier-to-understand rules would make it simpler for companies to decide who is due overtime and who is exempt.

Results: A mixed bag

One major change: The "salary level" threshold for exempt status would increase from $155 per week to $425 per week. That, in effect, means employees earning below $22,100 a year would automatically qualify for overtime pay. That change alone, the government estimates, would convert 1.3 million workers from exempt status (not eligible for overtime) to nonexempt status (eligible for overtime).

Better news: The rules are simpler, so you'll face less legal risk of unintentionally misclassifying employees as exempt.

Specifically, the "long test" and "short test" for analyzing which job duties qualify for exempt status would disappear. In their place would be a single simplified test for each exemption that focuses on the job's "primary duty."

To be considered an exempt executive, an employee would have to manage a business, direct at least two subordinates and have, or have influence over, hiring and firing responsibilities. Exempt administrative workers would need to do nonmanual work and hold "a position of responsibility." And exempt professional employees would be those performing nonmanual work that requires advanced knowledge gained from college, job experience, military training or a technical school.

Also, the proposal creates a brand new exempt classification for "highly compensated" employees. It says that any employee who performs office or non-manual work and earns at least $65,000 a year will be considered exempt if he performs one or more of the exempt duties of an executive, administrative or professional employee. Meaning: Thousands of well-paid office workers and professionals will no longer be entitled to overtime pay.

Meanwhile, if yours is a small business, listen up: The proposed rules broaden the definition of executive to include any employee who owns at least 20 percent equity interest in the business in which he's employed.

One-day pay docking allowed 

Here's another reason to celebrate: The new rules would allow your company to suspend exempt employees without pay for disciplinary reasons in one-day increments.

Under current rules, any disciplinary pay deductions of less than a full week violate the exemption rules, putting you at risk of losing that worker's exempt status. This current rule dramatically limits your ability to discipline exempt employees.

Other big changes: The new rules give you greater flexibility to provide bonus pay to exempt employees. Currently, you could jeopardize a worker's exempt status if you tie her extra compensation too closely to her hours worked. The new rules give much-needed guidance about how to pay bonuses while keeping exemption status intact.

Final approval looks likely

Will these rules win final approval? Previous attempts have failed and, so far, response to these proposals has been mixed. Our take: Expect these changes to stick this time.

That means you should review the rules now to see whether you need to start or stop paying overtime to certain employees or change your disciplinary policy to allow one-day suspensions for exempt employees.

The public has until June 30 to comment on the rules. (Don't be surprised if the comment period is extended.) Labor officials will then review the comments and publish final rules, which could take effect by late 2003 or early 2004. 

Jonathan Landesman practices labor and employment law at the Philadelphia firm of Cohen, Seglias, Pallas, Greenhall & Furman P.C., and is a YATL adviser.

? Free E-visory report:

Chart: Compare current,

proposed overtime rules

To determine how your employees would fit under the proposed overtime rules, and see how the plan compares with existing law, obtain a copy of our free E-visory report, Proposed Changes in Overtime Laws: A Side-by-Side Comparison. The report includes a link to let you send the Labor Department an online comment about the rules. To have the report e-mailed to you, go to www.you-and-the-law.com/extra.

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