DETROIT – On August 23rd new federal rules went into effect controlling whether executives, professional and administrative employees can be exempt from being paid overtime. Replacing rules which were basically unchanged for 50 years, the new rules are a better reflection of todays world and also designed to lessen the likelihood that employers will be exposed to huge judgments as experienced by employers over the past decade under the old rules.
With respect to IT professionals, the rules have not substantively changed, although they are clearer. Under the rules, even if employees do not satisfy the technical criteria for being executive, professional or administrative employees, highly skilled computer personnel who are paid on a salary basis at least $455 per week or a wage of at least $27.63 per hour can be treated as exempt from being paid overtime premium pay. These employees typically include those whose primary duties are systems analysis, programming, software engineering and other similar skills.
These duties must consist of any combination of the following: (1) the application of systems analysis techniques and procedures; (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on and related to user or system design specifications; or (3) the design, documentation, testing, creation or modification of computer programs related to machine operating systems.
But the new rules deserve serious attention because some employees previously treated as exempt will now be eligible for overtime pay if they work over 40 hours in a workweek.
For instance, instead of the former $250 per salary requirement, the new salary threshold for most employees in these white collar classifications is now $455 per week (or $23,660 per year). Anyone who was exempt prior to August 23rd and paid less will now be eligible for overtime pay.
In addition, the duties tests defining who can be an exempt executive, professional or administrative employee have also been changed. Unfortunately, the old subjective test that professionals and administrative employees must use independent judgment and discretion while performing their primary duties survived the rewriting of the rules, so there will likely still be litigation over these terms.
The new rules also added a few duties needed for being exempt. Executives, for example, now must have the authority to hire or fire employees. Also, the range of employees who may be considered exempt administrative employees may have been narrowed since it is now far clearer that they must not only use independent judgment and discretion, but they must do so with respect to matters of significance. It is doubtful that many lower level administrative employees considered exempt under the old rules will satisfy the criteria under the new rules for exempt status.
The new rules also contain three major benefits for employers, and these new benefits do not come at the expense of sacrificing fairness for employees. One makes it easier for employees earning more than $100,000 per year to satisfy the test for being exempt. Another allows exempt employees who violate rules of conduct (such as sex harassment policies) to be suspended for a few days without becoming eligible for overtime pay.
And perhaps most significantly, another creates a safe harbor for employers who make isolated errors in how they pay exempt employees. Under this rule, if the employer has a properly drafted safe harbor policy, the employers liability for the error can be nominal instead of huge. This rule, alone, should help lessen the tidal wave of litigation resulting in windfall judgments for employees never intentionally mispaid.
Employers should audit the exempt status of all of their employees, and with the assistance of counsel, make sure that they have a good safe harbor policy in place.
Robert Boonin is an employment law attorney based in Butzel Longs Ann Arbor office. For more information about this topic, he can be contacted at (734) 213-3601 or [email protected].
