Regulatory Review - Helicopter Association International

Regulatory Review - Helicopter Association International


by Charles K. Chung

Understanding the Labor Department's New Overtime Rule

Most of you are aware from

HAI's June Operations

Update article that on

April 23 of this year, the

Department of Labor (DOL)

released sweeping new overtimeexemption

rules, and gave

employers 120 days to implement

them. The DOL has issued these

new final federal rules under the

Fair Labor Standards Act (FLSA)

implementing the exemption from

minimum wage and overtime pay

for executives, administrative, highly

paid professional, outside sales and

computer employees. These new

rules became effective August 23 of

this year and there is every

indication that the Department of

Labor (DOL) will vigorously

enforce the new rules.

The government has not

overhauled these rules since 1954.

The last significant change of any

kind occurred in 1975 when the

DOL raised the salary level for

exemptions to $250 weekly. This

threshold has been in place for

almost three decades. The old rules

were so confusing and ambiguous in

that they precipitated class action

litigations for wage and hour

violations that have tripled since

1997, and currently represent the

largest category of employmentclass

actions. For instance, 25

percent of Fair Labor Standards Act

(FLSA) actions against Wal-Mart

Stores, Inc., involve allegations of

overtime abuse. These FLSA

regulations on overtime were so out

of date; they became one of the

most misunderstood, and often

violated employment laws.

The New Standard:

Under both the old and new

rules, employees must meet three

tests to be exempt from overtime

pay; 1) employee must be salaried

and not paid by the hour; 2)

employee must earn at least the

minimum stipulated salary of $455

36 Fall 2004

weekly ($23,660 annually); and 3)

employee must perform exempt

duties consisting primarily of

executive, administrative, or professional

duties. This means that employers

must pay overtime to all employees

earning less than $455 per week.

Employees earning more than $455

are only exempt if they either earn

more than the set salary level or

meet the duties test stated above.

The new rules also created a

new exempt category for "highly

compensated employees." This

exemption applies to individuals

making at least $100,000 a year who

perform non-manual labor.

Executives, administrative, or

professional duties that satisfies the

duties test are exempt from overtime

pay rules. Under these new rules, an

exempt "executive," in addition to

meeting the salary and duties test,

must have the authority to hire and

fire employees, or have significant

influence on hiring and firing.

"Highly compensated professional

employees" are exempt from this

overtime rule if he or she has a

primary duty of work requiring

advanced knowledge in a field of

science or learning, which is customarily

acquired by a prolonged course of

specialized intellectual instruction.

Work experience can substitute for

intellectual instruction.

Needless to say, assessing what

information you, as the employer,

need in order to determine what

your employees' duties are so you

can determine whether your

employees are exempt from

overtime pay is a time consuming

and labor-intensive process. As a

result of these new rules, some

employees are no longer entitled to

overtime pay, while others are

entitled to it for the first time. Some

employers have had to amend job

descriptions, handbooks, leave

policies, and time-accrued benefits.

Ways to ensure FLSA compliance:

The following are some

suggestions to assist HAI members

in complying with the FLSA

requirements. They are by no means

meant to be all-inclusive or the only

way to comply with the new

overtime rule requirements. HAI

recommends that HAI members

consult with their local experienced

labor law attorneys for full legal

advice regarding this issue.

1. Audit: One of the ways to ensure

full compliance with all aspects of

the FLSA is to conduct a complete

wage and hour audit. An audit

basically consists of matching up job

duties with the exempt categories.

Additionally, employers will also

need to make sure that they apply

the new regulations consistently

throughout the organization.

2. Review the exempt

classifications carefully: The exempt

classifications must be reviewed very

carefully, for obvious reasons.

3. Document every step of the

review process: Equally important as

conducting the audit is documenting

every step of the review process.

HAI member employers can avoid

difficulties with the Department of

Labor by documenting their steps.

Specifically, establish what steps

were taken and why those steps

were taken.

4. Communicate: Clearly

communicating with individuals

involved in the exemptionevaluation

process is undoubtedly

the best way to tackle this issue with

affected employees. It is a good idea

for employers to explain changes to

affected employees to ensure that

he or she does not feel threatened

by the evaluation.

Know your local state laws: It

should be pointed out that many

states, including Illinois and

California, have local laws with

higher standards than the FLSA.

The FLSA sets minimum standards

only, and it expressly authorizes

independent state and local

regulation of minimum wages and

overtime. 29 U.S.C. 218. California,

for example, makes employers pay

overtime if any employee works

more than eight hours in a single

day regardless of the total number

of hours worked during the week.

Illinois has already anticipated the

federal changes with revisions to its

state laws. Washington's Minimum

Wage Act ("MWA"), the state law

counterpart to the FLSA, imposes

parallel, and in some instances more

stringent, standards in many of the

areas covered by the federal law.

Other states are expected to follow

similar suit.

What about Helicopter Pilots?

While these new rules do not

specifically address the issue of

professional pilots, in the preamble

to these new final regulations, the

DOL decided not to apply the

"professional" exemption from

overtime pay to pilots who are not

otherwise exempt. As an example,

most pilots including airline pilots

are exempt from the FLSA

overtime requirement under the

FLSA 13(b)(3), which exempts "any

employee of a carrier by air subject

to the provisions of the Title II of

the Railway Labor Act." However,

the exempt status of other pilots,

such as corporate jet and helicopter

pilots, are determined under the

section 13(a)(1). The application of

that section of FLSA to pilots has

been the subject of recent

conflicting federal court decisions.

Because the law is unsettled on

the subject, and due to what DOL

feels is insufficient evidence on the

standard educational requirements

for various pilot licenses, DOL says

it will maintain its position that

pilots paid less than $100,000/year

who are not air carrier employees

will not be classified as

"professionals" exempt from the

overtime pay requirements.

However, since it has been DOL's

policy for several years to not

enforce the overtime pay

regulations for helicopter pilots

engaged in certain flying activities, it

appears likely that DOL may

continue that "non-enforcement"

policy. Therefore, helicopter pilots

who are currently considered by DOL

to be exempt from the FLSA

overtime pay requirements will

probably continue to be exempt from

overtime pay, unless the DOL changes

its position regarding those pilots.

Congress Still Undecided

At the time this article was written,

Congress was still undecided on the

merits of the new Overtime Rules.

The U.S. House of Representatives

had adopted an amendment sponsored

by Representative David R. Obey

(D-WI) to overturn the new Overtime

Rules. However, the Senate has yet

to take action on the proposed rule.

HAI will continue to follow this

issue and to provide updated

information to the membership.

Charles K. Chung is director of

regulations and international affairs

for HAI.

Fall 2004


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