Human Capital & Careers

New Rules for Overtime Pay

Revisions to the federal Fair Labor Standards Act were intended to reduce confusion and litigation, but instead they have fueled more of both.
Kate O'SullivanJune 4, 2004

Overtime pay is getting an overhaul. In April, the Department of Labor released the first significant revision of the federal Fair Labor Standards Act in more than 50 years.

The new rules are intended to reduce confusion — and litigation — over overtime exemptions, but instead they have fueled more of both. Concerned that employers will now be able to deny extra pay to midlevel employees, the Senate passed two amendments in early May protecting the overtime status of 55 job categories. The House of Representatives subsequently blocked a vote on the issue.

Barring further congressional action, the DoL’s plan is slated to take effect in August. Under the new rules, employees who earn less than $23,660 per year will automatically qualify for overtime pay regardless of their job classification, while those who earn $100,000 or more and perform office work will not be eligible. The plan also prohibits “creative professionals” from receiving overtime. Police officers and firefighters are guaranteed overtime pay.

Critics argue that the changes make it easier for employers to reclassify workers and eliminate overtime wages for those who earn more than $23,660. “The net effect is going to be to exclude more people from overtime coverage than it adds,” says Thomas Kochan, a professor of management at MIT’s Sloan School of Management. In particular, he takes issue with a new rule that will exclude “team leaders” from overtime eligibility.

Joe Levanduski, CFO of Hawk Corp., an industrial-components maker in Cleveland, expects to make few changes based on the new rules. He says that where the current law is ambiguous, Hawk tends to pay employees overtime.

As wrangling over the final form of the law continues, John Thompson, a partner at Fisher & Phillips LLP, advises employers to review all their employees’ classifications and to prepare for questions about overtime status. “The furor over these changes could provoke wage and hour claims that have nothing to do with the new rules,” he says.