29 Apr 2014

Big Changes to Overtime Pay In the Works

In his January State of the Union Address, the president announced his intention to exercise his executive authority whenever possible to advance core priorities of his economic agenda, including increasing the minimum wage and raising compensation for workers generally. As part of these efforts, President Obama recently issued a Presidential Memorandum to the Department of Labor directing it to significantly narrow the Fair Labor Standards Act’s (FLSA) so-called “white collar” exemptions for overtime pay.

 

For employers in Arkansas and across the country, these changes to the FLSA’s overtime exemptions, when defined and implemented, will have a big impact on the amount of overtime pay they may be on the hook for and on how they structure the compensation schemes and define job responsibilities for thousands of employees. The specific parameters of the reforms will not be known until the Department of Labor issues its final rules, which may take years. However, any proposed changes will include plenty of opportunities for public comment, so employers need to follow these developments closely.

 

Current Overtime Rules

Currently, the FLSA requires employers to pay most employees overtime pay at time and one-half their regular pay rate for the hours they work in excess of 40 in a workweek. However, Section 13(a)(1) of the FLSA provides an exemption from overtime pay for employees employed as bona fide “executive, administrative, professional and outside sales” employees.

 

To qualify for this “white-collar” exemption, employees must be paid at least $455 per week on a salary basis.  Additionally, their job responsibilities must meet very specific tests. In order to be exempt, an employee’s duties must include managing a part of the business and supervising other employees or exercising independent judgment on significant matters or matters that require advanced knowledge. Significantly, job titles alone do not determine whether employees are “white-collar” under the exemptions.

 

Changes to Minimum Salary and Job Responsibility Requirements Anticipated

The last revisions to the exemptions came a decade ago, when the Bush administration raised the minimum qualifying salary level from $155 a week to $455 a week and changed some of the requisite job duties.

 

The anticipated changes to the exemptions will likely focus on raising the minimum qualifying salary level as well as tightening up the definitions and parameters of the job responsibilities that can make an employee exempt.  This could include setting a specific floor on the percentage of time an exempt employee must spend performing “management” responsibilities as part of his job duties in order to qualify.

 

Whatever the ultimate result of these changes, there is little doubt that the final rules will present two fundamental alternatives for employers: 1) be prepared to have a larger number of employees who will be entitled to overtime pay, or 2) be prepared to raise the salaries of some employees in order to lift them above the higher threshold required to exempt them from overtime pay requirements.

 

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