The White House is reportedly announcing today that the President will direct the U.S. Department of Labor to tighten certain overtime exemptions under the Fair Labor Standards Act (“FLSA”). Whatever these rule revisions turn out to require, it is a certainty that they will have the effect of reducing the number of employees who are exempt from overtime.
The FLSA was enacted in 1938 at a time when the unemployment rate was acknowledged to be about 20 percent. The law established minimum wage and overtime pay requirements for employees. The FLSA’s purpose was to pay the employed better and more fundamentally to make the cost of overtime so expensive (at an overtime rate of “time and one-half”) that businesses would hire more people rather than schedule existing employees to work overtime hours. Noted historians have observed that the FLSA overtime provisions had no impact on unemployment, but nonetheless, the law continues to this day.
Under the FLSA, all employees are required to be paid overtime unless they are the subject of specific exemptions.
Three exemptions often discussed together are executive, administrative and professional, the so-called “white collar exemptions.” In order to qualify for any of these exemptions, there are two broad requirements, including that: (1) the employee must be paid on a true salary basis of not less than $455 per week, and (2) the employee must perform exempt duties.
The Obama administration is directing the U.S. Department of Labor to tighten both of these requirements.
The last time that the salary-level and exempt-duty requirements were materially changed was in April 2004, when the Bush administration raised the salary floor for exempt status from $155 per week (where it had stood since 1975) to $455 per week. The Consumer Price Index for all urban consumers (CPI-U) nationwide increased 46% between April 2004 (when the floor was last raised) and January 2014. The Consumer Price Index for urban wage earners (CPI-W) nationwide increased about 47% during that same period. If the new regulations applied CPI to the current $455 salary level, it would increase to about $670. In 2016, California’s floor is set to rise to $800 per week, and New York’s floor will increase to $675. At present, Nebraska, Colorado, and Iowa effectively follow federal law on this.
In addition to increasing the salary floor required for these exemptions, the White House also has called for a heightened exempt-duties requirement. The reports that we have seen so far were limited to the requirements of the executive exemption, where the administration apparently wants employees under this exemption to spend more time performing exempt duties in order to qualify for the exemption.
The U.S. Chamber of Commerce already has stated that it intends to be fully attentive and engaged in the process of rule revision. No doubt other groups, in both the business and labor sectors, will be involved too.
Meanwhile, employers may want to take a look at the number of their exempt employees who are paid more than $455 up to and including about $675 per week, because, one could speculate, these employees may become ineligible for executive, administrative or professional exemptions as these rule changes are developed. If that were the case, these employees would have to be paid at the overtime rate for all hours worked in excess of forty in a work week.
If you have questions about the operation of these overtime exemptions in your company today, or what this might mean for the future, please don’t hesitate to contact us. Our partner Bob Evnen will talk more about this tomorrow morning at 7:40 a.m. on KFAB radio, 1110 on the dial, or you can listen in on the live stream at KFAB.com.
For more information, please contact our Labor & Employment Practice Group. We encourage you to subscribe to our Labor & Employment E-Briefs to get the latest HR news, tips, and updates.