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The
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Advisories
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The New Overtime Rule and Application Introduction Confusion is the word
for employers regarding the new labor rules!
The new labor law collectively known as The Fair Labor Standards Act
of 2004 has been in effect since August 23, 2004. Unfortunately most employers are as
confused about this new rule as they are about high energy physics. The following will serve as a guide to help
employers find where they stand in relation to the new overtime rules. The Rule The new Fair Labor
Standard’s Act’s biggest change is in worker exemptions. Workers are generally eligible for overtime
after working above 40 hours in a workweek if they are not exempt
employees. To be exempt, workers must
fit the following tests: First, the new rule
establishes a threshold test for eligible employees. It is simply whether the employee earns
over $455 per week. If the employee
does not earn above this amount, the employee does not qualify for salary and
is eligible for overtime. However,
this test does not apply to outside salespeople. Secondly, the
employee must fit into an exemption as described by the U.S. Department of
Labor to qualify for a salary basis compensation payment. The employee can fit into that of being
highly compensated, an executive, an administrative worker, a professional,
or an outside salesperson. A)
Executive exemption – This exemption has been
broadened from the old definition.
Their primary duty must be to manage an enterprise or unit including
two full time employees. Part time
employees do not count. B)
Professional – This definition has also been
broadened. A professional must do work
which requires the application of advanced knowledge. The advanced knowledge can generally be
gained from a bachelor’s degree, but can also be gained form experience. Nurses and chefs now fit the definition. C)
Administrative – Not much has changed in this
category. The administrative duties
must be related to management and the employee must exercise discretion and
judgment to qualify for the exemption. D)
Highly Compensated – If an employee is making over
$100,000 per year, they qualify as being highly compensated and are exempt
under less scrutiny for examination purposes. E)
Outside sales
person – This
has also changed. Instead of the old
test of greater than 80% of the duties being performed away from the office,
the new test calls for it being the primary duty only. Therefore if the employee performs 50% or
more of his or her job away, it is primary.
Less than 50% can qualify in limited instances depending on
importance. The rule does not
exempt pay for manual laborers such as plumbers, mechanics, carpenters,
etc. Additionally, those who were
exempt before are still exempt. State Conflicts The new rule is a
federal rule. It preempts all state
rules. However states can develop
standards higher than the federal government’s allowing to make their own
rules. Some states are defiant, others
partially defiant, and others merely go along with the federal rule. If a state is
defiant that means their rules conform to the old requirements (i.e. Exemption classification) and only accept
the federal rules where required (i.e. Salary level). These states are If a state is
partially defiant, that means generally outside salespeople must still
conform to the 80% outside sales requirement as opposed to the new primary
duties requirement. They accept the
federal salary level and are split regarding exemptions. These states are If a state goes
along with the rule, that means they have a “me too” rule in place. These states accept the federal standard as
their own rule. All other states not
mentioned carry this rule. However,
the governor of Conclusion The new overtime rule is hard to apply
given state and federal conflict.
However with the proper analysis nobody should find themselves in
violation of the new rules. Contact the professionals at The Center for more
assistance. To receive the Advisory by e-mail,
please send your address to lacie@taxplanning.com |
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The Center
for Financial, Legal and Tax Planning, Inc. |
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Satellite Office: Longboat Key, FL |
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(618) 997-3436 Fax: (618) 997-8370 © Copyright 2005. All rights reserved. |
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