By Peter L. Ebb

Completing a journey worthy of Odysseus, the Labor Dept.'s on-again, off-again, much-debated, and long-awaited revisions to the overtime pay regulations under the Fair Labor Standards Act took effect on Aug. 23. Delayed by partisan wrangling for over a year and at various times thought to be near a political death, the changes are the first significant overhaul of the overtime pay rules in more than 50 years. These Labor regulations determine which employees are eligible for "time and a half" premium pay for hours worked in excess of 40 in a workweek, and which employees are "exempt" from the overtime pay requirements.

Organized labor has viewed the regulations as significantly weakening overtime pay protections for many workers, and even the publication of the final rule in April did not stop Congressional efforts to scuttle the changes. Now employers must quickly move beyond the role of spectators to a big-picture political saga, and grapple with the practical effects of the changes on their workforces.

While most employers have already taken substantial steps to ensure compliance with the new regulations, a number of industry surveys have shown many employers still struggling to come up to speed. Complicating the compliance effort is the fact that, for many employers, implementing the new regulations will entail their first comprehensive review of company pay practices in decades.

THE BASICS.

The first step for an employer is to understand what has changed, and what has not. Typically, employees are eligible for overtime premium pay (as "nonexempt employees") unless they hold positions falling within one of three "white collar" exemptions. To fit within these three exemptions -- executive, administrative, and professional -- a position must both:

1. Require the performance of particular, and typically discretionary, duties; and

2. Be paid on a salaried, rather than hourly, basis, though there are several notable exceptions to the "salary basis" requirement, including doctors, lawyers, teachers, certain skilled computer professionals, outside salesmen, and managers who own at least 20% of a business.

The new regulations loosen some of the standards on both prongs of this analysis. They broaden in important ways the white collar "duties" tests. They also relax some of the criteria for determining whether a position is truly paid on a "salary basis" (generally, payment of a predetermined amount for a workweek, which does not vary based on the quality or quantity of work performed) or is instead, effectively, compensated by the hour.

THE "DUTIES" TESTS.

• Executive Employees. As under the current regulations, an "executive" employee must have as her "primary duty" the management of an enterprise, or a customarily recognized department or subdivision of the enterprise. The "primary duty" test, however, has been made significantly more flexible, both for "executive" positions and for "administrative" and "professional" employees.

First, while duties that involve more than half an employee's time will still generally be considered "primary," the new regulations provide greater leeway for a finding of exempt status, even where less than 50% of the employee's time is taken up with exempt functions.

Second, under the new regulations, nonexempt tasks that are "directly and closely related" to an employee's exempt responsibilities may now be counted as exempt work in determining the employee's primary duties. The standard for what constitutes "management" duties also has been expanded, as has the definition of a customarily recognized "department or subdivision" of an enterprise. As a result of these changes, a number of employees previously just outside the executive-employee exemption should now be safely within it. Nonetheless, even under the new regulations, not every "manager" or supervisor will necessarily be an "executive."

• Administrative Employees must have as their primary duty the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers -- and those primary duties must include the exercise of discretion and independent judgment with respect to matters of significance (because of the "discretion and independent judgment" requirement, there are many "administrative" employees in every organization, including most "administrative assistants," who are not covered by the "administrative" exemption, and who must be paid overtime premium pay). While this duties test is largely unchanged under the new regulations, the number of positions likely to meet the test has increased.

The new regulations' examples of the types of positions which may be treated as "administrative," and of the kind of work properly viewed as involving "discretion and independent judgment," both suggest a broader compass for this exemption. As well, several existing criteria have been dropped under the new regulations. These included the requirement that an administrative position must either directly assist another exempt employee, or perform special projects under only general supervision, and the requirement that "discretion and independent judgment" be exercised "consistently" or "customarily and regularly."

• Professional Employees must have as their primary duties work requiring knowledge of an advanced type, work in a field of science or learning, or work customarily acquired by a prolonged course of specialized intellectual instruction. In addition to loosening the "primary duty" test (as discussed above), the new regulations make clear that occupations whose educational prerequisites involve three years of nonspecialized college instruction and a fourth year in an accredited specialized program will generally be exempt.

• Highly Compensated Employees also create an entirely new class of exempt employees: those with a total annual compensation of at least $100,000. So long as these employees customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee (even if that duty is not their primary duty), they may be treated as exempt. At least $455 per week of this compensation, however, must be paid on a salary or fee basis -- the balance may be in the form of commissions, nondiscretionary bonuses, and other non-discretionary income.

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