Earlier today, President Obama issued a memorandum directing Secretary of Labor Thomas E. Perez to update and modernize the overtime regulations of the Fair Labor Standards Act (FLSA). The intent of the update is to narrow the “white-collar” exemptions (i.e., executive, administrative, and professional), making overtime available to “millions” more workers. This memo is one piece of a larger presidential agenda that includes raising the federal minimum wage, improving job training programs, and creating jobs discussed in President Obama’s State of the Union address.
The FLSA presumes employees are nonexempt and entitled to overtime pay unless their employers can show the employees meet three tests for exempt status: salary level, salary basis, and duties. In his speech, the president made specific mention of the salary level currently required for exempt employees—$455/week or $23,660/year—as being too low. The proposed changes are expected to raise this level and to revise the duties test, possibly reinstating requirements that exempt employees spend a specific percentage of their time performing exempt duties in place of the “primarily engaged” requirement.
Changes to exempt status will have a substantial impact on employers by expanding the pool of workers entitled to overtime pay. The U.S. Department of Labor (DOL) last revised these regulations in 2004, triggering a wave of litigation against employers.
Thankfully, these changes will not happen overnight. The 2004 regulation changes took nearly two years to complete. Once the DOL issues proposed regulations, employers will have an opportunity to comment before they become final.
We recommend that you use this lag time to review your exempt classifications under the current regulations. As you do so, be aware that an employee paid a salary is not necessarily exempt, and that job titles do not determine exempt status. Contact MSEC for assistance with exempt and nonexempt classifications. We will update you as this situation develops.