Who Must Be Paid Overtime Now?

Date Published: 
June, 2004
Original Author: 
Michael S. Pepperman, Esq. and Jason Reisman, Esq.
Obermayer Rebmann Maxwell & Hippel LLP
Original Publication: 
ICFM Magazine, June 2004

Managers of funeral homes and cemeteries, like managers of all businesses, must carefully consider whether each employee is entitled to overtime compensation.

The federal government's new overtime regulations, drawn up with an eye toward clarifying the standards for "exempt" status and reducing litigation, are scheduled to become effective 120 days from their release on April 20.

In these final regulations, the U.S. Department of Labor modified the requirements for the "white collar" exemptions under the Fair Labor Standards Act. As many of you are aware, the DOL published "proposed" regulations in March 2003. After receiving and analyzing over 80,000 comments, the DOL issued the new regulations.

The final regulations retain some of the proposed changes, make some additional modifications and in some cases revert to concepts in the former regulations. Even though some old and confusing concepts remain (i.e., "discretion and independent judgment"), the DOL offers some additional guidance for employers.

We provide here a general review of the final regulations' key provisions, including brief explanations of the ways in which they modify the old and proposed regulations.

The New Exemption Standards
• General DOL Goals Accomplished:
1.    Modernized the minimum salary level required for each exemption from $155/week ($8,060/year) to $455/week ($23,660/year).
2.    Streamlined the exemption duties requirements by eliminating the obsolete "long tests" and creating a "standard duties" test for each exemption.
3.    Expanded the employer's ability to dock exempt employees' salaries.
4.    Narrowed the "penalty" for improper deductions from exempt employee salaries and created a "safe harbor" for unintentional violators to avoid penalties and litigation.
5.    In some areas where there has been confusion, though the regulations were not modified, the department provided additional guidance and examples to help make the regulations clearer.

• Executive Exemption. Imposing a higher burden on employers, the DOL modified this exemption to require: a salary of at least $455/week paid on a salary basis (as defined in the regulations); a primary duty of management; direction of the work of at least two full-time employees or the equivalent; and the authority to hire and fire, or to make effective recommendations as to employment actions.

The DOL also eliminated a proposed special exemption for "sole charge" executives and modified an exemption for 20 percent owner-employees.

• Administrative Exemption. Resurrecting the "discretion and independent judgment" requirement, the DOL reverted back to the existing standard, except for the salary level.

The requirements are a salary of at least $455/week paid on a salary basis (as defined in the regulations), a primary duty of office or non-manual work directly related to the management or general business operations of the employer or its customers and the exercise of discretion and independent judgment on significant matters.

The DOL eliminated its proposed change that the employee have a "position of responsibility," meaning performing work of "substantial importance" or requiring a "high level of skill or training."

• Professional Exemption. Under the professional exemption, there is the "learned professional exemption" and the "creative professional exemption." Although neither exemption appears to have changed much beyond the new increased salary level, the DOL has issued more guidance.

Significantly, however, the DOL changed course regarding how the specialized knowledge required for a "learned professional" is acquired. Despite proposing to dilute its focus on a four-year academic degree requirement and allow for expertise acquired through work experience or military training, the DOL reversed its position. The requirement will continue to be a specialized course of "academic" instruction.

The final regulations specifically address funeral directors and embalmers as professional positions. They make clear that "licensed" funeral directors and embalmers who are licensed by and working in a state that requires successful completion of four academic years of pre-professional and professional study, including graduation from a college of mortuary science accredited by the American Board of Funeral Service Education, generally meet the requirements for the "learned professional" exemption.

The DOL indicates that 16 states have such licensing requirements. In states such as Colorado (no educational requirements for funeral directors or embalmers) or those other states that require only a high school education, no "professional" exemption would apply .

• Highly Compensated Employees Exemption. This new category requires that the employee is paid total compensation of at least $100,000/year, at least $455/week of which is salary, and that the employee performs at least one of the duties of an exempt executive, administrative or professional employee.

• Computer Employee Exemption. Although the DOL did modify this exemption, the changes appear to be a streamlining effort rather than an overhaul. The requisite salary level increases to $455/week, but payment on a salary basis is not required and the alternative hourly option remains at $27.63/hour. The final regulations continue to limit this exemption to computer systems analysts, computer programmers, software engineers or other similarly skilled workers in this field, and not for office computer maintenance/repair employees.

• Outside Sales Exemption. Although not appearing to change much, once again the DOL emphasizes that this exemption is for truly "outside" sales employees—those employees regularly traveling out of the office to visit customers—not "inside" sales workers such as telemarketers.

Department of Labor Guidance for Certain Occupations
Because classifying employees as exempt can be confusing, the DOL has produced a list of various occupations, indicating those that may be exempt under the FLSA. The following is a brief summary:

• Blue Collar workers. The DOL explicitly states that the above exemptions are exclusive to ''white-collar'' workers, and do not include workers who perform work involving repetitive operations with their hands, physical skill and energy.

No matter how highly paid, non-management employees in production, maintenance, construction and similar occupations are entitled to minimum wage and overtime pay under the FLSA. Such "blue collar" employees gain the skills and knowledge required for the performance of their routine manual and physical work through apprenticeships and on-the-job training.

• Veterans. Veteran status alone is not sufficient to exempt an employee. Military training, for example, is insufficient in itself to meet the professional exemption standards.

• Financial Services Industry Employees. Financial services industry employees will generally qualify as exempt under tile administrative exemption, assuming that the work actually performed is consistent with that type of industry.

However, an employee whose primary duty is selling financial products does not qualify for that exemption. The exempt status of financial services employees is based on the duties performed, and not the type of customers served.