New Overtime Rules Take Effect In Two Weeks

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August 12, 2004 -- Businesses with revenues exceeding $500,000 will face new standards when determining who must be paid overtime starting August 23.

New federal regulations established by the Department of Labor are intended to simplify regulations that the department called "confusing, complex and outdated." The job duty requirements for overtime under the Fair Labor Standards Act hadn't changed in more than 50 years and components of the overtime rules hadn't changed in decades.

The rules are focused on two areas: the salary levels eligible for overtime and redefining which "white collar" employees are exempt from being paid overtime.

The salary levels are the most basic changes. Almost anyone earning $455 or less per week is entitled to overtime. That means almost anyone earning less than $23,660 a year must be paid overtime. A few occupations remain exempt, including teachers, lawyers and doctors. The minimum salary level was last updated in 1975, when it was set at $155 per week.

The new regulations also set a maximum salary eligible for overtime. Workers earning at least $100,000 a year, defined as "highly compensated" individuals, will now be exempt from overtime pay if they perform at least one of the duties of an executive, administrative or professional employee, as defined by the Labor Department. The $100,000 threshold includes all bonuses and anything else earned during the year. The Labor Department estimates that 107,000 workers earning $100,000 could lose their overtime protection.

The qualitative changes come under what duties exempt executive, administrative and professional workers, as well as computer and outside salespeople, from overtime pay. A full explanation of the new rules can be found at the Labor Department's Web site.

In its economic analysis of the new standards, the Labor Department noted that "there is not likely to be a substantial impact on small businesses." However, the department estimated that the total cost to employers will be $1.1 billion in the first year and $375 million in each subsequent year. This cost is made up of implementation costs, job review costs and paying out more overtime.

Despite the standards having been established in April, a recent study by Hewitt Associates, a human resource consulting firm, found that 20 percent of the more than 150 companies surveyed didn't believe they would meet the August 23 deadline. Companies cited outdated job documentation and understanding the new rules as the main obstacles in implementing the new standards.

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.