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The Department of Labor’s final regulations regarding overtime exemptions are scheduled to become effective on Aug. 23. DOL trumpets the new regulations as a “Fair Pay Overtime Initiative,” claiming the new rules will strengthen overtime rights for 6.7 million workers, including 1.3 million low-wage workers denied overtime under the previous rules. Democrats and organized labor are not convinced. They are actively attempting to block implementation of the new rules, which are viewed as too friendly to business. The nuggets for business include a new exemption for employees earning at least $100,000, permissible deductions from salary for violating workplace conduct rules, a new safe harbor from liability for unlawful deductions, clarification regarding hotly contested classifications of employees such as insurance claims adjusters and financial industry employees, and relaxation of the percentage requirement for exempt employees who also perform non-exempt work. The following is a brief overview of a few of the significant changes in-house counsel need to be aware of to ensure their company is in compliance: � The Highs and Lows of Compensation. The regulations create a new exemption for management employees whose total annual compensation is at least $100,000 (which must include at least $455 per week paid on a salary or fee basis) and who customarily and regularly perform one or more of the exempt duties of an executive, administrative or professional employee. The new exemption does not apply to those whose “primary duty” includes “non-management production-line” work and “non-management employees in maintenance, construction and similar occupations.” On the other end of the spectrum, workers earning less than $23,660 per year are entitled to overtime. � Disciplinary Deductions and the New Safe Harbor. The new rules permit employers to impose full-day suspensions without pay where exempt employees violate written workplace conduct rules applicable to all employees. For example, an employer can impose a full-day unpaid suspension on an exempt employee for violating the employer’s written policy prohibiting sexual harassment. A practice of unlawful deductions from salary no longer threatens the loss of exempt status for an entire classification of employees. The loss of the exemption will now only apply to employees in the same job classification and who work for the same manager responsible for making the improper deduction. However, this assumes liability for the improper deduction. The new regulations also include an expansive safe harbor from liability where employers: 1. reimburse employees for any improper deductions; 2. maintain a clearly communicated and distributed policy that prohibits improper pay deductions, which includes a complaint mechanism; and 3. make a good-faith commitment to comply in the future. � Hotly Contested Classifications. DOL attempts to clarify the exempt status of certain hotly contested classifications, including insurance claims adjusters, financial services employees and blue-collar workers. For example, for insurance adjusters, DOL sets forth duties that will generally constitute exempt work, including interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation. A similar road map of exempt duties exists for financial services employees. ‘PARTICULAR WEIGHT’ The new regulations also make some key changes to the standard exemptions: � Executive Exemption. The new regulations eliminate the requirements that executive employees exercise discretion or independent judgment and devote certain percentages of time on exempt versus non-exempt work. The regulations specifically allow an executive employee to concurrently perform exempt and non-exempt work. One of the least business-friendly portions of the regulations is the requirement that the executive have the authority to hire or fire other employees. In the alternative, the executive’s suggestions and recommendations as to hiring, firing, advancement or promotion (or other change of status) of other employees must be given “particular weight.” DOL provides guidance regarding the meaning of this phrase. � Administrative Exemption. The regulations provide examples of exempt activities and positions including team leaders for major projects, executive assistants, human resource managers and purchasing agents. The revised duties test includes 1. a primary duty of office or nonmanual work “directly related to the management or general business operations of the employer or the employer’s customers” and 2. the exercise of “discretion and independent judgment with respect to matters of significance.” The new regulations include a list of functional areas considered administrative in nature. � Professional Exemption. The regulations eliminated the prohibition against a professional employee spending more than 20 percent of his time on activities that are not an “essential part of and necessarily incident to” his professional work. Paralegals are singled out as generally not being exempt under the professional exemption, unless they have an advanced specialized degree in another professional field (such as an engineering degree) and use that knowledge in the performance of their duties. � The Computer Employee Exemption. The regulations create a separate exemption for computer employees, taking them out of the professional exemption. The exemption is no longer limited to work related to “software functions,” but can now include: 1. application of system analysis techniques and procedures or 2. system/program development and design. Those engaged in the manufacture or repair of computer equipment are not exempt. � Outside Sales Exemption. The regulations remove the requirement that outside sales persons spend at least 80 percent of their time on outside sales activities and related tasks. No specific time requirements apply, so long as they are substantial enough to constitute the “primary duty.” � State Wage and Hour Laws. State wage and hour laws may contain more generous coverage, or differing duties tests than the new regulations. Although some states are attempting to opt out of the new regulations, Texas has not taken any such action to date. Roland M. Juarez is a partner in the employment group of Akin Gump Strauss Hauer & Feld (www.akingump.com). He extends special thanks to Joel Cohn, an employment law partner in Akin Gump’s Washington D.C., office, as well as Akin Gump’s national employment law team, for assistance with this article. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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