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March 25, 2004
Wage & Hour Chief Speaks on the Final FLSA Rules

Legal Editor, Business & Legal Reports

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With only a week or two before the expected unveiling of new overtime definitions in the Fair Labor Standards Act (FLSA), employers have lots of questions. Among them: How drastic will the changes be? How much will it cost to implement them? They got some clues when U.S. Wage and Hour Administrator Tammy D. McCutchen spoke recently to the Society for Human Resource Management's annual Employment Law & Legislative Conference in Washington, D.C.

McCutchen emphasized that when the regulations become final, "there will be substantive a number of areas."

Why change the rules?

McCutchen told a sympathetic audience of HR professionals that the current rules for exempting "white collar" workers from overtime pay are hard to understand, hard to apply, and long overdue for change.

The Department of Labor wants to modernize the rules by both increasing the salary threshold and clarifying the overtime exemption standards for the executive, administrative, professional, computer, and outside sales categories.

The proposed increase of $270 per week to the salary test-acting to bring the regulations in tune with inflation-would be the largest increase in the history of the law. Prior to this proposed increase, the largest increase was $50 per week.

McCutchen said the DOL "could not sit by while low-wage employees were being denied overtime, six-figure earners were getting overtime, and employers were spending millions of dollars on litigation rather than on job creation." Unable to remedy these injustices, "investigators at the Wage and Hour Division did not have the tools they needed to be able to enforce the overtime laws." So the DOL began its journey to rework the FLSA regulations.

The process of change

According to McCutchen, the process began two years ago, when the DOL invited representatives of more than 80 groups-including business, organized labor, and government-to discuss the overtime rules, determine what needed to change, and draft a proposal. The proposal took one year to draft.

Then came the tidal wave of public comments. McCutchen recalled that "during our 90-day comment period, the department received&75, 289 comments from a wide variety of employees, employers, professional associations, business owners, labor unions, [and] government." Most of the comments were form letters, but the DOL did receive "about 600 substantive comments" recommending particular changes to the law. Some claimed that the DOL had gone too far in its proposed changes; others hoped that the final regulations would be more drastically revised than the proposal outlined.

Touching on the individual exemptions

McCutchen noted that the "proposed changes to the executive exemption will actually make it more difficult than under current law for employees to qualify as exempt executives." While many opponents of the proposed regulations believe that employers will be able to more easily classify employees as exempt than currently, McCutchen claimed that this was actually not true for the revisions in the executive exemption.

As for the professional exemption, McCutchen stated, "Although we tried to cut unnecessary verbage from the current sections of the professional exemption, we are not proposing, contrary to what you may have heard, substantial changes in the educational requirement for the exemption&. The proposed changes for the professional exemption merely clarifies that an employee within a professional occupation, like engineering or chemistry or physics&.[who] does not have an advanced degree, is also able to be classified as a professional" right along next to those employees who gained their skills and knowledge by obtaining advanced degrees.

McCutchen mentioned that the DOL received very negative feedback on the proposed changes to the administrative exemption. There may be some changes, therefore, between the proposed rule and the final one. This is something employers should note when the final rules are released, she said.

Conduct a self-audit

One of McCutchen's main points was her encouragement to employers to audit their companies now. Citing the wave of class-action lawsuits and DOL audits, McCutchen urged employers and HR professionals to make sure their employees are properly classified, even before the regulations are finalized. Conduct a self-audit, make sure your records are thorough and organized, and make sure you pay past overtime to employees who are wrongly classified.

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