Legislative changes to the national Fair Labor Standards Act are finally a reality. These new regulations change many of the guidelines governing overtime, including which employees should be classified as exempt or non-exempt for overtime. The actual classifications themselves could impact businesses in a dramatic way. The legislation states that an employer only has 120 days to comply with the complex and detailed changes. Moreover, failure to comply can result in devastating financial punishments, costly legal battles, and criminal prosecution. The deadline date is August 23, 2004.

It is important for employers to fully understand the complicated new rules and make appropriate changes. For example, all employers need to revisit their employee classifications to ensure that each exempt employee is learning the new, higher threshold salary ($455 per week, or $23,600 annually) and performs the job duties that pass one of the new exemption tests. The new regulations will have a dramatic impact on the traditional job hierarchies that have evolved over time.

As employers consider increasing employee pay to the new threshold, pay for some jobs may "leapfrog" other jobs where pay remains constant because employees would not satisfy the other requirements for exemption.

Employers should keep in mind that they may find communicating changes to their employee's FLSA status very challenging. Non-exempt employees often perceive great value in receiving overtime pay while exempt employees generally view their exemption as creating greater upward career potential. The result is that employees are generally resistant to any changes in status.