Expect Changes to White-Collar Overtime Regulations

On March 13, 2014, President Obama directed the Labor Department to streamline overtime regulations and make more workers eligible under federal law. The presidential memorandum instructs the Department of Labor (DOL) to consider, specifically, how the current white-collar overtime exemption could be simplified and updated.

The Fair Labor Standards Act (FLSA) requires employers to pay most employees overtime pay (time and one-half the employee’s pay rate) for hours they work in excess of a 40-hour workweek. There is a white-collar exemption, however, that exempts bona fide executive, administrative, professional, or outside sales employees from the overtime pay requirements. To be exempt, FLSA requires employees be paid a salary of at least $455 per week ($38,000 per year) and meet certain tests related to their job duties.

At this point, it is difficult to know what changes the DOL will propose, but there is speculation that the changes will result in significant expense to employers, requiring them, at a minimum, to review how workers are classified, track overtime hours, and possibly pay some workers more to retain their exempt status. The three primary areas of focus appear to be: 1) increasing the minimum salary level for white-collar exempt employees; 2) revising the duties requirement for the executive exemption; and 3) streamlining the regulations to make them easier to apply. According to the Society for Human Resource Management, employers should start planning for important changes now.

What will you do with an exempt employee who is paid $38,000 per year if the minimum salary requirement is raised? Do you let the employee become nonexempt or raise the salary? Will you raise manager salaries if the exempt employee’s salary is raised?

In order to make changes, the DOL will have to go through the standard rulemaking process, which will likely take 12 to 18 months. The DOL will propose a rule, offer time for public comment, consider revisions, obtain clearance from the White House Office of Management and Budget, and ultimately, issue the final rule.

Stay tuned to “Now You Know It” for additional updates regarding this important issue.

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