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Overtime Rules Proposed by DOL

April 10, 2003

The U.S. Department of Labor (DOL) recently issued proposed rules intended to update rules setting forth exemptions from the Fair Labor Standards Act. The proposed rules, published on March 31, would establish new standards for employers to use in determining which employees are exempt from requirements governing minimum wage and overtime pay.

The notice of proposed rulemaking (NPRM) reorganizes the existing rules by employee categories eligible for exemption: executive, administrative, professional, computer, and outside sales. The current two-tiered system of eligibility tests would be replaced with one standard duties test for each category. In addition, salary thresholds set in 1975 would be updated, so that the threshold below which workers automatically qualify for overtime pay would increase from $155 a week to $425 a week ($22,100 annually). Highly compensated employees making more than $65,000 performing nonmanual work would be exempt if they had an identifiable executive, administrative, or professional function. Existing rules requiring that employees be paid on a salary basis in order to qualify for the exemption would be modified slightly.

The elements of the proposed standard duties test for executive, administrative, professional, and computer employees follow.

An exempt executive employee must

  1. have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
  2. routinely direct the work of two or more employees; and
  3. possess the authority to hire or fire other employees or have particular weight given to suggestions and recommendations concerning the hiring, firing, advancement, promotion, or other status changes of employees.

An exempt administrative employee must have a primary duty of “performing office or nonmanual work related to the management or general business operations” of the employer or the employer’s customers and hold a position of responsibility. The proposed regulations include a list identifying the types of work areas that meet this requirement: tax, finance, accounting, auditing, quality control, purchasing, procurement, advertising, marketing, research, safety and health, personnel management, human resources, employee benefits, labor relations, public relations, government relations, and similar activities.

A specific exemption is provided for administrative employees with a primary duty of performing functions directly related to academic instruction or training in an educational institution or department thereof. The proposed rules note that only those responsible for academic operations, rather than business functions of the institution, would qualify and cite academic department heads as an example.

An exempt professional employee must have a primary duty of performing office or nonmanual work that

  1. requires advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, but which also may be acquired by an equivalent combination of intellectual instruction and work experience; or
  2. entails performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

An exempt computer employee must have a primary duty consisting of

  1. the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
  2. the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  3. the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
  4. a combination of the aforementioned duties, the performance of which requires the same level of skills.

As part of the modernization of the rules, DOL held a series of meetings last year with various stakeholder groups and heard suggestions from more than 40 groups representing employees and employers. The agency has embedded questions in the NPRM and encourages comments on a number of issues.

Comments on the proposed rules are due on or before June 30, 2003.

The NACUBO contact is Mary Bachinger. She can be reached at (202) 861-2581 or mary.bachinger@nacubo.org.


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