August 23, 2004, the Wage and Hour Division of the U.S. Department
of Labor has issued revised regulations that update the exemptions
for salaried executive, administrative, professional and other "white collar" employees who are not entitled to overtime pay
for working more than forty (40) hours in a week.
highlights of the new regulations include:
The salary level for employees who are automatically entitled
to overtime pay has been increased from $155 per week to $455 per
week, which is an annual salary of $23,660.
This means that any salaried employee who makes less than
$455 per week will be entitled to overtime pay for work in excess of
40 hours per week regardless of the employee’s duties and
new regulations do not apply to manual laborers and "blue
collar" workers who continue to be eligible for overtime pay, such
as non-management production line employees and non-management
employees in maintenance, construction and any of the trades
(carpenters, plumbers, electricians, etc.).
For salaried employees who make at least $455 per week, the
statutory exemption from overtime pay requirements may apply,
depending on the employee’s specific duties and responsibilities.
"Salary" for this purpose is a predetermined amount of
compensation paid on each pay period.
Such compensation, to qualify as salary, cannot be reduced
because of variations in the quality and quantity of work and, with
specific exceptions, must be payable in full for any week in which
the employee performs any work.
Improper deductions from an employee’s compensation can
cause the loss of the employee’s exempt status (see item 6 below).
Permitted deductions from salary payments include:
payments for time actually worked during the first and last weeks of
from work for one or more full days for personal reasons other than
sickness or disability.
from work for one or more full days due to sickness or disability
pursuant to the employer’s bona fide sick leave plan or policy
providing "wage replacement" benefits.
for amounts received for jury fees, witness fees or military pay.
imposed in good faith for violating safety rules of "major
suspensions of one or more full days imposed in good faith for
violation of work rules.
note that certain employees, such as outside sales persons and
employees in certain computer-related occupations who meet minimum
compensation requirements, can be exempt even if not paid on a
Salaried employees earning at least $455 per week will
qualify as exempt "executive" employees if they satisfy all of
the following requirements:
employee’s primary duty is management of an enterprise or a
customarily recognized department or division thereof.
duties for executive employees include selecting and training
employees, setting pay and work hours, maintaining production or
sales records, evaluating employees’ performance, handling
complaints and grievances, disciplining employees and planning and
allocating work among employees.
employee "customarily and regularly" directs the work of at
least two other full-time employees.
employee has the authority to hire or fire other employees or
the employee can make recommendations as to hiring, firing and
promotion of other employees that are given "particular weight."
executive exemption also applies to employees who have a bona fide
ownership interest in at least twenty percent (20%) of the business
and are actively engaged in its management.
Salaried employees earning at least $455 per week will
qualify as exempt "administrative" employees if they satisfy all
of the following requirements:
employee’s primary duty is the performance of office or non-manual
work directly related to the management or general business
operations of the employer or its customers, including "staff"
jobs in the areas of tax, finance, accounting, quality control,
purchasing, advertising, marketing, research, human resources,
employee benefits, labor relations, governmental relations and
employee’s primary duty includes the exercise of discretion and
independent judgment with respect to matters of significance, such
as formulating management policies and operating practices,
operating a particular segment of the business that affects overall
business operations to a substantial degree, carrying out major
assignments relating to the operation of the business, exercising
authority to commit the employer with respect to matters that have a
significant financial impact, providing consultation or expert
advice to management, planning long term or short term business
objectives, and representing the employer in handling complaints,
arbitrating disputes and resolving grievances.
administrative duties do not include working on a production line,
selling a product in a retail
or service establishment, recording or tabulating data, clerical
work, or applying established procedures or standards described in
manuals or other references (this includes inspectors performing
routine inspections as well as examiners and graders who compare
products to established standards).
Employees in the exempt professions generally include
doctors, registered nurses (not practical nurses), lawyers,
teachers, accountants, pharmacists, engineers, actuaries, executive
chefs, athletic trainers and licensed funeral directors.
Although an employee’s exempt status can be lost if amounts
are improperly deducted from the employee’s "compensation,"
such deductions will not cause the loss of exempt status if they are
isolated or inadvertent and the employer reimburses the
employee for the deduction. Improper
deductions would include deductions for partial-day absences for
personal reasons and deductions of a day’s pay because the
employer’s business was closed for weather-related reasons.
However, an actual practice of making improper salary
deductions will result in the loss of the exemption unless the
employer follows the "safe harbor" procedure by:
communicating a policy prohibiting improper deductions, including a
employees for any improper deductions; and
a good faith commitment to comply in the future.
model safe harbor notice has been prepared by the Department of
Labor and is available at www.dol.gov/esa/regs/compliance/.
Compliance basics are not changed by the new regulations.
Employers must examine the job duties of employees who meet
the $455 per week salary threshold.
There may be employees currently treated as exempt who should
not be, and vice versa. Employers
must also maintain and communicate a policy of requiring non-exempt
employees to record all working time and all such time must be
consider circulating a "safe harbor" notice (item 6 above) by
including it in an employee handbook, publishing it on the
employer’s intranet or handing it out with employment
Date: October 8, 2004
Golan Christie Taglia LLP
70 West Madison St.
Chicago, Illinois 60602