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In the first major overhaul of federal overtime law under the Fair Labor Standards Act in nearly 50 years, the U.S. Department of Labor enacted controversial new regulations that took effect on Aug. 23, 2004. DOL gave employers a 120-day window to comply with the new regulations, and many lawyers advised companies to review the salary levels of employees to ensure they remained eligible for exempt status and to conduct a re-examination of all exempt and non-exempt employee job duties to ensure proper classification. Now, nearly one year since the new regulations went into effect, it appears they have generally benefited employers, but numerous pitfalls remain. Employers continue to face some problems caused by the changes, but there are steps in-house counsel can take to minimize their companies’ liabilities. The new regulations made many changes, but the five most significant are as follows. The minimum amount a worker must earn to be classified as an exempt white-collar employee increased from $155 per week or $8,060 per year to $455 per week or $23,660 per year. All employees earning less than $23,660 are entitled to overtime pay, regardless of their job duties. A new exempt classification was created for white-collar workers earning $100,000 or more per year who also perform any administrative, professional or executive duties. DOL modernized and clarified the standards employers must meet to claim white-collar exemptions. Now, in addition to the requirement of being paid on a salary basis, an employee’s primary duty determines whether the requirements of a particular exemption have been met. “Primary duty” means the main or most important job the employee performs. It depends on the character of the job as a whole, rather than on what an employee’s actual duties may be on a day-to-day basis or the percentage of time expended on exempt versus non-exempt work. Salary deductions for disciplinary suspensions of one full day but less than one full week are permissible without jeopardizing a worker’s salaried status. Employers who inadvertently make improper deductions from exempt employees’salaries are allowed a window of correction enabling them to avoid losing the exemption provided the employer (a) has a clearly communicated policy prohibiting improper deductions (including a complaint procedure), (b) reimburses employees for any improper deductions, and (c) makes a good-faith commitment to comply in the future. IMPACT OF NEW REGULATIONS Despite dire predictions, the revised regulations have not led to the loss of overtime eligibility for millions of formerly non-exempt workers. In fact, a Dec. 3, 2004, posting by Paul Kersey on the Heritage Foundation’s Web site claims press reports indicate that, when companies applied the new rules, they either found no change or found that more workers would be eligible for overtime. Some companies are having trouble determining whether certain occupations, such as computer specialists, customer service representatives and administrative assistants should be classified as exempt or non-exempt under the new guidelines. Case law provides little guidance for the in-house lawyer seeking to resolve the confusion, since the revised regulations are not retroactive. Only a handful of opinion letters issued by the DOL and available on the DOL Web site provide any sort of guidance for in-house counsel trying to determine how the new regulations have impacted particular jobs. One opinion letter does clarify that paralegals, even those who have received a four-year college degree plus additional education and training, do not qualify as exempt professionals unless they also have a degree in another learned field and are hired for their expertise in that field. Another recent opinion letter noted that, despite the provision in the new rules that insurance claim adjusters generally meet the duty requirements to fit within the administrative exemption, there is no blanket exemption for claims adjusters. Where the adjusters do not exercise discretion and independent judgment, but only collect information as directed, input it on a standard form and apply set formulas to determine the benefit level, they remain entitled to overtime. In addition to confusion over classification, many employers have questions about when they may dock a salaried worker’s pay for absences or disciplinary infractions. Employers also remain uncomfortable with the rules regarding how deductions for partial-day absences may be taken against salaried workers’ accrued leave accounts. Finally, it appears that many employers have failed to take the actions needed to take advantage of the window of correction, so that they may retain white-collar exemptions in the event of unintentional errors in compensating salaried workers. Even if in-house lawyers conducted a full classification and salary review after the revisions took effect, general counsel should also consider the following steps to ensure full compliance: � Implement a written policy providing that no employee can work overtime without the written authorization of a supervisor. Conduct spot-checks to ensure that supervisors do not require overtime without a written record. � Take advantage of the window of correction by developing a written payment policy that includes a complaint procedure. A model policy appears on the DOL Web site. � Confirm that managers and payroll personnel understand the prohibition against partial-day deductions for salaried workers and know how to handle deductions from salaried workers’ accrued leave balances. The new regulations permit deductions in partial-day increments, even if they result in a negative leave balance. However, the employee must receive his full salary, regardless of whether there is a negative balance, unless he missed at least one full day of work. � Plan to perform reviews at least every other year to ensure that classifications remain accurate and based on current job duties. In-house counsel can help their companies remain in full compliance with the new regulations, while at the same time taking full advantage of the added protections the updated rules offer employers. Shelly Greene is of counsel at Bruckner Burch in Houston, where she focuses on labor and employment law. She graduated from the University of Virginia and received her law degree from the College of William & Mary Marshall-Wythe School of law, where she was inducted into the Order of the Coif. She is licensed to practice in Texas, California and Virginia and all federal courts within the state of Texas. Greene and her firm have presented numerous programs on topical labor and employment issues to legal and business groups throughout Texas.

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