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Overtime rules: Who is entitled to overtime
who gets paid for over 40
hours worked
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Under the new
FairPay rules, workers earning less
than $23,660 per year (or $455 per week) are guaranteed
overtime protection.
Other information about
employer regulations and QuickBooks payroll
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In
Summary:
The effective date of these regulations is
August 23, 2004.
For a list of how an employee qualifies for an exemption from
paying overtime rates,
click here. Anyone not falling under the
exemptions below must be paid overtime rates for hours worked in
excess of 40 hours.
Exempt employees in addition to the
rules mentioned below:
Salary requirements must be met!
Be sure to view the webinars on what deductions from
salary are permitted without loosing the OT exemption
Employees who are paid by
the hour are not exempt!
Recordkeeping requirements of hours
worked:
click here
The following information was obtained from the free webinars
available at the department of labor website:
http://www.dol.gov/esa/regs/compliance/whd/fairpay/main.htm
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Learned
Professional
who is exempt |
Creative
Professional
who is exempt |
Learned
professionals primary work duty must be the
performance of work requiring advanced knowledge
(predominately intellectual in character, and which
includes work requiring the consistent exercise of
discretion and judgment) in a field of
science or learning which is customarily acquired
by a prolonged course of specialized intellectual
instruction. The
salary requirements do not apply to doctors
(including interns and residents), dentists,
lawyers and teachers.
Fields of science or learning include:
law, theology, medicine, pharmacy, accounting,
teaching, architecture, engineering and the
physical, chemical or biological sciences.
The learned professional exemption is
not available for
occupations that may be performed with only the
general knowledge acquired by an academic degree in
any field; knowledge acquired through an
apprenticeship; or training in the performance of
routine mental, manual, mechanical or physical
processes. The exemption also
does not apply to
occupations in which most employees acquire skill
by experience. Licensed
practical nurses generally do not
qualify as exempt learned professionals. Employees
who do not meet the requirements for the learned
professional exemption include:
accounting clerks
and bookkeepers
who normally perform a great deal of routine work;
cooks
who perform
predominantly routine mental, manual, mechanical or
physical work;
paralegals and
legal assistants;
and engineering
technicians. Employees are
not exempt if they
use manuals to apply well-established techniques
or procedures within closely prescribed limits
to determine the correct response to an inquiry or
set of circumstances.
The learned professional
exemption applies to any
employee who holds a valid license or certificate
permitting the practice of medicine. Registered
nurses who are registered by the appropriate State
examining board generally meet the duties
requirements for the learned professional
exemption. However, many
registered nurses receive overtime pay because they
are paid by the hour, not on a salary
basis as required for exemption. Registered
or certified medical technologists, dental
hygienists and certified physician assistants also
generally meet the duties requirements for the
learned professional exemption if the successfully
complete four years of study in an accredited
college or university.
Other exempt learned
professionals include: lawyers, teachers,
accountants, pharmacists, engineers, actuaries,
chefs, athletic trainers and funeral directors or
embalmers. |
Creative professionals primary duty must be the
performance of work requiring invention,
imagination, originality or talent in a recognized
field of artistic or creative endeavor. The
requirement of "invention, imagination, originality
or talent" distinguishes the creative
professions from work that primarily depends on
intelligence, diligence and accuracy. The
recognized fields of artistic or creative endeavor
include music, writing, acting and the graphic
arts.
Exempt creative professionals include
musicians, composers, conductors, novelists, screen
writers, actors, painters and photographers.
The requirement of "invention, imagination,
originality or
talent" distinguishes the creative professions from
work
that primarily depends on intelligence, diligence
and
accuracy. Since the duties of employees vary
widely, the
determination of exempt creative professional
status
must be made on a case-by-case basis, based on the
extent of the invention, imagination, originality
or talent
exercised by the employee.
Journalists cannot meet the educational
requirements
for the learned professional exemption. In
addition,
journalists, reporters and
other employees of newspapers, magazines,
television and other media are not exempt creative
professionals if they collect,
organize and record information that is routine or
public or if they do not contribute a unique
interpretation or analysis. Journalists also
are not exempt if their work product is subject to
substantial control.
However, journalists may be
exempt if they perform on-air in
radio or television, conduct investigative
interviews,
analyze or interpret public events, or write
editorials,
opinion columns or commentary.
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Administrative Professional
(White Collar) who is exempt |
Executive
Professional
who is exempt |
The
administrative exemption applies only if all of the
following is met:
- The employee's primary
duty must be the performance of office or
non-manual work directly related to the
management or general business operations of
the employer or the employer's customers. To meet
this requirement, the employee must perform work
that is directly related to assisting with the
running or servicing of
the business. Work "directly related to
management or general business operations"
includes, but is not limited to, work in such
areas as tax; finance; accounting; budgeting;
auditing; insurance; quality control; purchasing;
advertising; marketing; research; safety and
health; human resources;
public relations; legal and regulatory
compliance; and similar activities.
- The employee's primary
duty includes the exercise of discretion and
independent judgment with respect to
matters of significance. If the
employee has authority to formulate, affect,
interpret, or implement management policies or
operating practices; carries out major
assignments in conducting the operations of the
business; performs work that affects business
operations to a substantial degree; has authority
to
commit the employer in matters that have
significant
financial impact; has authority to waive or
deviate from established policies and procedures,
without prior approval; has authority to
negotiate and bind the company on significant
matters; provides consultation or expert advice
to management; is involved in planning long- or
short-term business objectives; investigates and
resolves matters of significance on behalf of
management; and whether the employee represents
the company in handling
complaints, arbitrating disputes or resolving
grievances are factors to consider when
evaluating if the employee qualifies for this
exemption.
The exercise of discretion and independent
judgment must be more than the use of skill in
applying well-established techniques, procedures
or specific standards described in manuals or
other sources. This exemption is not
available for
employees who simply apply well-established
techniques or procedures described in manuals or
other sources within closely prescribed limits to
determine the correct response to an inquiry or
set of circumstances. Other examples of employees
who may meet the duties requirements for the
administrative exemption include: an
employee who leads a team of other employees
assigned to complete major projects; executive
assistant or
administrative assistant to a business owner or
senior executive of a large business who has been
delegated authority regarding matters of
significance; and management consultants who
study the operations of a business and propose
changes in organization
Those who generally do not qualify as exempt
administrative employees include: employees
performing ordinary inspection work involving
well-established techniques and procedures;
examiners and graders who perform work involving
comparison of products with established standards;
comparison shoppers who merely report the prices at
a competitor's store; and public sector inspectors
on investigators.
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The
executive exemption applies if all the following is
met:
- The employee's primary
duty primary duty of management of the
business or of a customarily recognized
department or subdivision. Management includes
activities related to supervising employees such
as interviewing, selecting, and training of
employees; setting and adjusting pay rates and
work hours; conducting performance appraisals;
handling employee complaints and grievances; and
disciplining employees. Management also
includes other functions related to running or
servicing a business such as determining the
merchandise to be bought, stocked and sold;
planning and controlling the budget; and
monitoring or implementing legal compliance
measures. An exempt executive must manage
the entire business or have management
responsibility over a "customarily recognized
department or subdivision" of the business.
A "department or subdivision" is a subpart of the
business which has "a permanent status and
continuing function."
- The employee must
customarily and regularly direct the work
of two or more full-time employees (35-40
hours per week). The employee must
direct the work of other employees at least once
a week, but not every day
- The employee must have the
authority to hire or fire
other employees, or have her suggestions and
recommendations as to hiring, firing,
advancement, promotion or any other change of
status be given particular weight.
A manager who performs both
exempt and nonexempt work at the same time is not
automatically disqualified from the executive
exemption. Generally, the exempt executives
themselves make the decision regarding when to
perform nonexempt duties. In contrast, the
nonexempt employee generally is directed by a
supervisor to perform the exempt work or performs
the exempt work for defined time periods.
Employees who own at least 20-percent equity in a
business and are actively engaged in the management
of the enterprise are exempt executives.
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Outside
Sales
Exemption |
Computer Related Occupation
Exemption |
The outside
sales exemption applies only if all of the
following is met:
- The employee’s primary duty must be making
sales (as defined in the FLSA), or obtaining
orders or contracts for services or for the use
of facilities for which a consideration will be
paid by the client or customer. Promotional
work that is actually performed incidental to and
in conjunction with an employee’s own outside
sales or solicitations is exempt work. However,
promotion work that is incidental to sales made,
or to be made, by someone else is not exempt
outside sales work.
- The employee must be customarily and
regularly engaged away from the employer’s place
or places of business.
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The
computer occupation exemption applies only if all
of the following is met:
- For computer systems
analysts, computer programmers, software
engineers, and other similarly skilled workers in
the computer field who meet certain tests
regarding their job duties
- The employee’s primary
duty must consist of:
1. The application of systems
analysis techniques and procedures, including
consulting with users, to determine hardware,
software or system functional specifications; or
2. The design, development,
documentation, analysis, creation, testing or
modification of computer systems or programs,
including prototypes, based on and related to user
or system design specifications; or
3. The design, documentation,
testing, creation or modification of computer
programs related to machine operating systems; or
4. A combination of the
aforementioned duties, the performance of which
requires the same level of skills.
The
computer employee exemption does not include
employees engaged in the manufacture or repair of
computer hardware and related equipment. Employees
whose work is highly dependent upon, or facilitated
by, the use of computers and computer software
programs (e.g., engineers, drafters and others
skilled in computer-aided design software), but who
are not primarily engaged in computer systems
analysis and programming or other similarly skilled
computer-related occupations identified in the
primary duties test described above, are also not
exempt under the computer employee exemption. |
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Highly
compensated employee
(over $100,000 per year) |
The
highly compensated exemption applies only if all of the
following is met:
- The employee earns total
annual compensation of $100,000 or more, which
includes at least $455 per week paid on a salary
basis;
- The employee’s primary
duty includes performing office or non-manual
work; and
- The employee customarily
and regularly performs at least one of the exempt
duties or responsibilities of an exempt
executive, administrative or professional
employee.
An employee may qualify as an
exempt highly-compensated executive if the employee
customarily and regularly directs the work of two
or more other employees, even though the employee
does not meet all of the other requirements in the
standard test for exemption as an executive. |
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A number of common payroll and recordkeeping
practices are allowed that do not call into question
whether someone is paid on a salary basis.
- taking deductions from exempt employees'
accrued leave accounts;
- requiring exempt employees to
keep track of and record their hours worked;
- requiring
exempt employees to work a specified schedule; and
implement bona fide, across-the-board changes in
schedules.
Another common question that arises is whether
exempt
salaried employees may be paid additional
compensation, without affecting their exempt salaried
status. An employer may provide additional
compensation besides the minimum guaranteed salary to
an exempt employee without losing the exemption or
violating the salary basis test, as long as the
employment
arrangement includes a guarantee that at least the
minimum $455 weekly amount will be paid on a salary
basis. For example, an exempt employee guaranteed
at
least $455 each week on a salary basis may also receive
additional compensation for working beyond the normal
workweek, which may be paid on any basis such as a
flat sum, bonus payment, a straight-time hourly amount,
time and one-half, or any other basis, and can include
paid time off. Similarly, the exemption is not lost
if an
exempt employee who is guaranteed at least $455 each week on a salary basis also receives additional
compensation in the form of commissions on sales or a
percentage of the profits.
In addition, an employer can calculate an exempt
employee's earnings on an hourly, daily or shift basis,
without losing the exemption or violating the salary
basis
requirement, if the employer guarantees that at least the
minimum weekly required amount will be paid on a
salary basis regardless of the number of hours, days or
shifts worked, and there is a "reasonable relationship"
between the guaranteed amount and the amount actually
earned.
"Reasonable relationship" means the weekly guarantee
is roughly equivalent to the employee's usual earnings at
the assigned hourly, daily or shift rate for the
employee's
normal scheduled workweek. For example, an exempt
employee guaranteed at least $500 per week and who
normally works four or five shifts each week, may be
paid $150 per shift without violating the salary basis
requirement. The reasonable relationship
requirement
applies only to situations where the employee's pay is
computed on an hourly, daily or shift basis; it does not
apply, for example, to an exempt store manager paid a
guaranteed salary of $650 per week who also receives a
commission on store sales or profits, which in some
weeks may equal or even exceed the guaranteed salary
without violating the salary basis requirement.
Administrative and professional employees may also be
paid on a fee basis rather than on a salary basis.
An
employee is paid on a "fee basis" if the employee is paid
an agreed sum for completing a single and unique job
regardless of the time required to complete the work.
Payment on a "fee basis" is not available for a series of
non-unique jobs repeated an indefinite number of times
for which payment on an identical basis is made over
and over again. Payments based on the hours, the
hours or days worked and not on the accomplishment of
a single, unique task are not payments on a fee basis.
To test whether a fee payment meets the minimum level
required, consider the time worked to complete the job
and determine if the payment is at a rate that would
yield
at least $455 per week if the employee worked 40
hours. For example, an artist paid $250 to paint a
portrait that took 20 hours to complete meets the
minimum salary requirement since the rate would yield
$500 if 40 hours were worked.
All you ever wanted to know
about payroll
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IRS
Circular 230 Disclosure: To ensure compliance with
requirements imposed by the IRS, we inform you that, any U.S.
federal tax advice contained in this communication is not intended or written to be used, and cannot be
used, for the purpose of (i) avoiding any tax related penalties that
may be imposed on you or any other person under the Internal Revenue
Code or (ii) promoting, marketing, or recommending to another party
any transaction or matter addressed in this communication |
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