8/23/2004 - The Department of Labor (DOL) implemented its amendments to the Fair Labor Standards Act on August 23, 2004, changing the rules on determining which positions are exempt from overtime. Some highlights of the new provisions are:

·The minimum salary level threshold for exempt employees increased from $250 per week ($13,000 yr.) to $455 per week ($23,660 yr.). Any employee earning less than $23,660 a year will be non-exempt.

·The new rules emphasize the “primary duties” of the employees in determining exempt eligibility, and drop the requirement that they spend no more than half of their time on non-exempt work to remain exempt from overtime.

·Revised primary duties for the “White Collar” exemptions especially the Executive and Administrative Exemptions.


The new executive duties test has three requirements: (1) Management of the enterprise or of a customarily recognized department or subdivision; (2) Customarily and regularly directs the work of two or more other employees; and (3) Authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight.

The final rule contains a definition of the phrase “particular weight.” The factors taken into account are whether such suggestions are part of the supervisor’s job duties, the frequency the supervisor makes these suggestions and the frequency with which they are relied upon. An occasional suggestion about a co-worker would not qualify.

Again, the new rules emphasize the “primary duties” of the employees in determining exempt eligibility, and drop the requirement that they spend no more than half of their time on non-exempt work to remain exempt from overtime. A Wage and Hour investigator will no longer try to figure out how much time employees spend on non-exempt duties. The positions that will benefit will be supervisors whose primary duties are mostly exempt but they may spend a majority of their day performing non-exempt duties when their locations are short handed.


The two new primary duties are: (1) The performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (2) Includes the exercise of discretion and independent judgment with respect to matters of significance.

The term “exercise of discretion and independent judgment” is not new but the new rules attempt to clarify this ambiguous phrase. Qualifying factors include:

*The comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. *Must be exercised with respect to “matters of significance,” which refers to the level of importance or consequence of the work performed. *Decisions may be reviewed at a higher level and, upon occasion, revised or reversed.


*Formulate, affect or interpret policy. *Carry out major business operation assignments. *Have authority to negotiate and commit the business to a financial obligation. *Have authority to deviate from established procedure. *Resolve customer complaints and grievances.


Employees in the financial services industry will generally qualify for the Administrative Exemption if their duties encompass all of the following: Collecting and analyzing information regarding the customer’s income, assets, investments or debts; Determining which financial products best meet the customer’s needs and financial circumstances; Advising the customer regarding the advantages and disadvantages of different financial products; and Marketing, servicing or promoting the employer’s financial products. However, this rule explicitly states that an employees whose only primary duty is selling financial products do not qualify for the Administrative Exemption. These employees could qualify for the Outside Sales Exemption if they are customarily and regularly engaged away from employer’s place of business with a primary duty of making sales or obtaining orders or contracts for services. The outside sales exemption will no longer require salespeople to spend no more than 20% of their work time in the office but they must be “regularly” engaged away from the office which would mean the majority of their time. Inside salespeople remain non-exempt.


Human resource managers who formulate, interpret or implement employment policies generally meet the Administrative Exemption duties requirements under the new rules. But, personnel clerks who “screen” applicants to obtain data regarding minimum qualifications and fitness for employment generally are not exempt administrative employees.


Under the new rules the primary duties for professionals did not change much. The employee’s primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. While the DOL tried to give experience in the field the same weight as courses in its initial proposal they reverted back to current regulations which rely on education. Degreed accountants qualify as do attorneys but accounting clerks and bookkeepers who normally perform a great deal of routine work do not qualify.


Exclusive to the computer exemption, an hourly rate of $27.63 was established as the salary threshold. This allows an hourly rate without the requirement to pay the time and one half overtime rate for hours over 40 in the workweek. However, the primary duties required under the computer exemption are very stringent. Not every IT employee will qualify for this exemption only computer systems analysts, computer programmers, software engineers or other positions requiring similar creative skills will be exempt. The exemption requires a high level of design and systems application not simple maintenance.


Employees who earn over $100,000 per year can be exempt if they are guaranteed at least $455 per week paid on a salary or fee basis, perform office or non-manual work and customarily and regularly perform any one or more of the exempt duties identified in the standard tests for the executive, administrative or professional exemptions.

The executive exemption includes owners of at least a bona fide 20-percent equity interest in the enterprise and they must be actively engaged in management of the enterprise. The salary level and salary basis requirements do not apply to 20% equity owners.


As you review your current employees in light of these new regulations, keep in mind that some states have their own wage and hour regulations. The stricter regulation for the employer should be followed if there is a contradiction. States with laws governing overtime are Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Washington, West Virginia, and Wisconsin.

Feel free to call Seay Management Consultants (407) 426-9484 to confirm compliance.

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