Barring congressional action or some legal challenge, on August 23, white-collar executive, administrative, professional and computer workers must meet newly-enacted overtime compensation regulations, including revised salary and duties tests, to be exempt from federal minimum wage and overtime provisions.  Between now and the time that regulations go into effect, prudent employers will analyze the new rules, review their existing employee classification and pay practices, and implement whatever new practices and reclassifications are required in light of the new rules. 

The final regulations published in the Federal Register on April 20 were vastly different from the original regulations proposed back in March 2003.  Some of the major differences, as between the proposed regulations and the new final regulations set to go into effect in August, include:

•  The salary level minimum threshold went from the proposed $425 per week to $455 per week.

•  Both long and short tests for exemption are replaced by one standard test.

•  The “highly compensated employee” exemption went from a proposed $65,000 annual base salary to a $100,000 annual base salary.

•  The “no pay-docking” rule was retained from the proposed regulations.

•  Current regs only permit one-day deductions for violations of major safety rules, while the new rules permit deductions for full-day disciplinary absences.

•  The new rules provide a broader interpretation of “safe harbor” for employers that make improper deductions from exempt employees’ pay.

•  The new regulations eliminate the requirement that “white collar” employees must not devote more than 20% of their time performing non-exempt work.

•  The proposed regs stated an exempt “white-collar” employee must hold a “position of responsibility”, while the final rules require that the employee must use discretion and judgment in “matters of significance to the organization.”

•  There were no changes to the current test for computer professionals.

To avoid compliance problems after August 23, employers should act proactively now.  The next two months provide a good opportunity for employers to consult legal counsel, take whatever steps are required in response to the new regulations and explain to affected employees the reasons for any needed changes or reclassifications.  At minimum, implementation planning for the new regulations ought to encompass the following tasks:

•  Evaluate the salary levels of all employees and identify those who may no longer be exempt due to the new minimum salary threshold or the highly compensated employee exemption;

•  Determine which employees will lose their exemption status and evaluate the extent to which salary adjustments or duties modifications can assist in preserving exempt status under the new regulations, and;

•  Develop an outreach and corporate communications plan so that HR personnel can handle questions and reactions to the new regulations by your employees.

It is important for employers to note that, while these new regulations do not modify the Department of Labor’s policies concerning calculation of overtime for non-exempt employees, employers frequently violate the FLSA by failing to include certain forms of compensation – such as shift differentials, on-call payments, non-discretionary bonuses, commissions and incentive earnings -- in non-exempt employees’ overtime pay.  In addition, the new FLSA regulations are also going to complicate employer efforts to interpret and comply with the overtime compensation exemptions contained in Maine law. 

Remember that, in some instances, Maine laws and regulations differ from the FLSA, and these laws and regulations may govern your workplace even after the new FLSA regulations take effect.  Where Maine has an overtime requirement and has more narrowly defined an exemption from an employer’s obligation to pay overtime, the employer must make sure that its employees meet the requirements of the Maine requirement or pay the overtime required by Maine law.