Washington, D.C.—Effective August 23, the U.S. Department of Labor issued its revised regulations of the Fair Labor Standards Act covering overtime pay eligibility—changes that were deemed long overdue by virtually all participants and observers in labor. How clear and fair the new regulations are is still subject to debate, however.

The regulations updated what had been in some cases almost comically outdated rules and terminology. For example, the previous guidelines made reference to occupations such as "switchboard operator."

"When these [old regulations] were in effect, you actually did have operators sitting in front of an actual switchboard," said Jade West, senior vice president- government relations for the National Assn. of Wholesaler-Distributors. "Those jobs don't even exist anymore."

The updated regulations cover exemptions from minimum wage and overtime pay for executive, administrative, professional, outside sales and computer employees. Workers qualify based on their respective job duties. In addition, they must be salaried positions, earning not less than minimum amounts as specified in pertinent sections of the new regulations. (A detailed summary of the new FLSA regulations can be found at the Labor Department's "Fair Pay" Web site: www.dol.gov/esa/regs/compliance/whd/fairpay/main.htm.)

The revisions may cause some job positions to be re-classified, exempting employees who previously qualified for overtime pay, and vice versa. Unfortunately for many distribution company owners, a vital part of their payroll was not addressed by the new rules: inside sales.

The Department of Labor does not provide an exemption from minimum wage and overtime pay for inside sales positions, which many business owners say is problematic because it diminishes the role and responsibility of inside sales.

West explains that, historically, inside sales has been viewed in the same light as a telemarketing job, "like a guy at L.L. Bean processing orders." Many industrial distributors take issue with that, saying that their inside salespeople are "professional" employees who should not have to punch a time clock.

"In the distribution world," West added, "most inside salespeople…are given reasonable autonomy in the management of customer relationships, pricing discretion, purchasing authority…These are the same responsibilities as many outside salespeople have."

The Labor Department maintains that Congress should make the inside sales change—that they (Labor) have no statutory authority to re-define the exemption for inside sales personnel. Technically, West explained, they're correct.

"You really don't want a federal agency to effectively enact laws without Congress. And that's what the Labor Department says it won't do here. And in order to create the exemption, you'd have to amend the statute. And that's a philosophically defensible position," she admits, stressing NAW's belief that such modifications are still needed.

The interests of distributors and their inside salespeople appear to be overshadowed for the time being by other aspects of the new regulations.

The Economic Policy Institute, a non-profit, nonpartisan think tank based in Washington, issued a report on the proposed regulations earlier this year. It estimated that 6 million workers would be ineligible for overtime pay under the new regulations. Eligibility could hinge on whether an employee could be categorized as professional, administrative or executive. For example, EPI's report estimated that more than 900,000 employees lacking a college or graduate degree could be ineligible for overtime since they could be designated as "professional employees" under the new regulations.

A leading opponent of the regulations is Sen. Tom Harkin (D-Iowa). In addition to the EPI report, Harkin based some of his criticism on a review of the regulations conducted earlier this year by three former Labor Department officials who worked under Democrat as well as Republican administrations. Among other findings, the report predicted that the regulations could result in greater confusion and increased litigation.

The report was made at the request of the AFL-CIO. It found that in the regulations, "more classes of workers…[would] be exempt than we believe Congress could have originally intended." It also criticized the new rules for "broadening eligibility for [overtime] exemption without substantially clarifying the rules."

"The report…verifies that these new vague regulations will harm rather than protect the fair interests" of employees, Harkin said in a statement.

West said NAW hopes that successful implementation of the new regulations will increase the chances of inside sales being added to the exempted category further down the legislative road.

While disappointed that the inside sales question wasn't more specifically addressed, West applauds the new regulations. If nothing else, they have "brought the job descriptions up to contemporary standards," she said, "and that may be the most important thing."

The old regulations "were so filled with anachronistic job descriptions that some employers were getting into trouble for non-compliance—when in fact compliance was a difficult thing to [achieve] because the job descriptions weren't contemporary enough," West explained. "How do you determine if an employee was exempt or not if there was nothing in the regulations that described what that employee even did?"

The revised regulations provide for a broader category of exempt employees at the professional and administrative levels. They also redefine what a professional is, in some cases, and what type of training and education has to be involved to qualify for an exemption.

West urges distributors to consult the Labor Department's Web site and their own legal advisors to ensure accurate compliance with the new regulations, especially when it comes to re-classifying employees. For example, West said she's heard from many distributors who have determined that their inside salespeople can, in fact, be exempted from overtime under these new regulations.

"We institutionally would never advise any employer whether their employees are qualified. I'd be remiss to second-guess any place of employment," she said. "But our advice is that they do not simply say 'my inside sales are exempt because I say so.' Look hard and closely at that exemption and make sure that legally, honestly and ethically you can say that your inside salespeople have discretion. Their decisions impact the management of the company. Make sure you can honestly say this works."

She anticipates that the newness of these regulations and overtime criteria will ensure that Labor Department officials will be watching closely.

There could be another problem area for distributors. West cited, as an example, a distributor who is based in the Midwest. Under the new regulations, he has to re-classify his entire inside sales force as non-exempt and was reluctant to do so.

"He told me 'I don't want to do this. I have a professional sales force, making good money on salary and commission, with incentive to earn. They have discretion on how they do their job. I don't want to tell these professional people that, effective Aug. 23, they have to come in and punch a clock,'" West said.