DOL’s Long-Awaited “FairPay” Overtime Regulations Will Soon Take Effect

May 3, 2004

In the September 2003 edition of the Thompson Coe Labor & Employment News, Elizabeth Marsh wrote of the pending changes to the "white collar" exemptions of the Fair Labor Standards Act's ("FLSA") overtime regulations. Since then, due to a heated political debate, the proposed changes have been further revised by the Department of Labor ("DOL"). These new "final" regulations have been dubbed the "FairPay" overtime regulations.

As of September of 2003, the proposed DOL changes sought to raise the minimum threshold salary for overtime from $155 per week ($8,060 per year) to $425 per week ($22,100 per year). Under the final FairPay regulations, this threshold has been increased once again. Once the regulations take effect, employees earning a salary less than $455 per week ($23,660 per year) will automatically be entitled to pay for overtime work, regardless of the nature of the duties they perform. According to the DOL, this change alone will entitle an additional 1.3 million salaried, white collar workers to overtime pay who were not entitled to overtime pay under the previous regulations.

On the other end of the spectrum, the new final regulations have increased the proposed monetary threshold for "highly compensated" employees. Under the earlier version of the proposed regulations, the DOL sought to provide a white collar exemption to employees who are paid $65,000 a year or more. As currently drafted, this highly compensated employee exemption has been increased to include only those employees who earn at least $100,000 per year, perform office or non-manual work, and customarily and regularly perform at least one of the duties described under the FLSA's administrative, executive or professional duties tests. Although this $100,000 salary threshold represents a significant increase from the prior proposal, this is an exception that does not exist under the current regulations. Consequently, its addition should still be viewed by employers as a positive addition to the FLSA.

Another positive aspect of the final regulations is that they allow employers more freedom to dock an employee's pay for disciplinary reasons. The existing regulations only permit deductions from an exempt employee's pay for violations of safety rules of "major significance" or for a disciplinary suspension in an increment of one or more full workweeks. The final regulations permit employers to subject salaried employees to unpaid disciplinary suspensions of one or more full days for violations of workplace conduct rules without jeopardizing the employee's status as an exempt employee. In addition, the final regulations also provide a new safe harbor provision which will make it easier for employers to correct improper deductions from an exempt employee's pay without incurring substantial overtime liability.

As can be seen from these changes, the FairPay regulations expand overtime coverage for some employees and restrict it for others. All in all, the regulations are being viewed as a victory for employers, as a driving force of the revisions has been to reduce overtime lawsuits. Only time will tell if the FairPay revisions live up to their name. The FairPay regulations are expected to take effect in mid-August of this year. Click here to read more about FairPay on the Department of Labor's Website.

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