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The New Overtime Rule & Application

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 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. 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.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. 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. 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. 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.



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 California (salary level slightly higher), Illinois, New Jersey, Oregon, and Pennsylvania. 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 Alaska, Arkansas, Colorado, Connecticut, Hawaii, Kentucky, Maryland, Minnesota, Montana, North Dakota, Washington, West Virginia, and Wisconsin. 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 Maine has threatened to change Maine’s state rule from a “me too” to a defiant rule.



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. 

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