Q: I keep hearing about these supposed new rules for overtime pay and I am confused. Are there new rules, and if so, what are they?
Adrian, Helena, Mont.
A: Yes, there are new rules that take effect this week, and any small business owner with gross revenues over $500,000 reading this better know what they are. In essence, the new regulations will make it more difficult for many employees to get overtime pay.
Let me first say that while I (obviously) usually side with the entrepreneur, this is one case where I favor labor; I think that with these new regulations, the Bush administration is shortchanging a lot of working people.
A little history is in order: The federal regulations that govern overtime pay (the Fair Labor Standards Act) were certainly outdated. Most had not been changed since shortly after World War II. Clearly much has changed in the workplace since then and an overhaul of these regulations was needed.
So the U.S. Department of Labor set about updating who would, and would not, be eligible for overtime. It was an issue of importance to many people. Overtime pay serves two useful functions. First, it allows applicable employees to supplement their income. According to an analysis by the Economic Policy Institute, overtime pay accounts for up to 25% of weekly earnings of eligible employees, with the average amount being $161.
Secondly, overtime pay serves a useful position in the overall economy. By requiring overtime, the federal government crafts an incentive for busy employers to create new jobs; rather than pay overtime, a new employee can be brought on. So the old system helped in many ways.
But be that as it may, the rules have changed. Here then are the most important rules you need to know:
First the good news for employees:
Rule 1: Almost all employees who make less than $455 a week ($23,660 a year) are eligible for overtime. The old rule set overtime for anyone who made less than $250 a week. The new rule applies whether the employee is blue collar or white collar, or whether they supervise people of not. The exception for this rule is teachers, doctors and lawyers. They do not get overtime, no matter what they are paid.
Now the bad news:
Rule 2: Any employee who earns more than $100,000 a year is ineligible for mandated overtime, period.
Rule 3: Any employee who earns between $23,660 and $100,000 a year, and who is in most executive, professional, or administrative positions, is not eligible for overtime. This does not, however, apply to salespeople. They are still eligible.
Rule 4: Managers are not entitled to overtime if they oversee two or more people and have the authority to hire, fire, or recommend that someone be hired or fired.
Rule 5: Administrative employees who have decision-making power and run some sort of operation are not eligible.
Rule 6: Employees whose job requires imagination, invention, originality, or artistic or creative endeavors are not eligible for overtime.
Rule 7: Employees whose main duties are computer-related and involve the implementation, analysis, development, or application of computer systems or designs are also not eligible for overtime.
Rule 8: Sales staff that regularly work outside of the employer’s place of business are, you guessed it, not eligible either.
If you are still confused (not surprising, really), then here are a few sites to help you:
The Department of Labor — www.dol.gov/fairpay
Society for Human Resource Management — www.shrm.org
The AFL-CIO site: www.workingamerica.org.