Overtime Tune-Up: The New Rules on Who Is Eligible for Overtime Kicked in on Aug. 23. Lenders Have a Keen Interest Because Some Class-Action Lawsuits Have Raised the Stakes on Making Sure Employers Are Complying Correctly with the Law

Article excerpt

THE FEDERAL REGULATIONS DEFINING WHEN A WHITE-collar employee does not need to receive overtime pay have remained mostly unchanged for more than 50 years. Recognizing that many of the provisions of those regulations have become outmoded in the setting of the 21st-century work force, the U.S. Department of Labor has substantially revised the requirements for overtime exempt status. The new regulations went into effect on Aug. 23, 2004. * The process of getting there, however, has not been easy. Updating the white-collar overtime regulations has provoked a political controversy unmatched in the employment area for more than a decade. * When President George W. Bush took office in 2001, there was general agreement that the regulations needed to be updated, but there were sharp disagreements over what this should mean in practice. For example, the term "white collar" had attached to the regulations at a time when it was relatively easy to draw distinctions between blue-collar employees on the shop floor and the employees responsible for managing or administering the business. Some of the distinctions could be found in the differing duties of employees. Other distinctions depended on how employees were paid--salary versus hourly pay--and how much they were paid. * Sprinkled throughout the 50-year-old regulations were descriptions of jobs that no longer exist, such as keypunch operators, legmen, straw bosses and gang leaders. * Ultimately, Secretary of Labor Elaine Chao decided to keep the basic structure of the regulations that classify employees based on the form and the amount of their pay, and on their duties. But she made significant changes, which first appeared in proposed regulations published for public comment in March 2003.

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Some commentators, such as those from organized labor, strongly opposed the proposed changes, arguing that the Department of Labor's proposal would allow many types of blue-collar jobs to be reclassified as exempt from overtime. Other commentators, such as those from the business community, supported the proposed changes but also argued that they did not go far enough in dealing with employment in the modern workplace.

These disputes intensified after the Department of Labor published the final regulations on April 23, 2004. Congressional opponents of the new regulations offered several legislative amendments that were intended to restrict the ability of employers to reclassify employees from overtime-eligible status to exempt status under the new regulations. As we go to press, none of these amendments has progressed to final passage.

Financial services and mortgage banking

The new regulations are intended to take into account significant changes in the U.S. economy and work force. These changes have been particularly dramatic in the financial services sector, including mortgage banking. Reflecting the importance of these issues, the Mortgage Bankers Association (MBA) participated actively in the process of developing the new regulations.

In the new regulations, the Department of Labor has specifically addressed several aspects of exempt status that directly affect mortgage banking employers. Management should become familiar with these new regulations and do a "tune-up" of their human resources and compensation policies.

Who gets overtime pay?

Under federal law--the Fair Labor Standards Act (FLSA)--employees of virtually all mortgage banking companies are entitled to overtime pay unless they are covered by an exemption. Most states have overtime laws or regulations that parallel the FLSA, although some states (such as California) have some additional restrictions to qualify for exempt status.

The burden falls on the employer to demonstrate that employees are exempt. Thus, it is important to understand what the exempt status regulations require and how to apply them to employees.

Different types of white-collar employees

The exempt-status regulations apply to four different types of white-collar employees based on their duties: executive, professional, administrative and outside sales. …