In March 2014, President Obama ordered the U.S. Department of Labor to revise the “white collar” overtime exemption regulations.  Declaring "Americans have spent too long working more and getting less in return," the President ordered the revision of the overtime exemption regulations with a goal of making millions more workers eligible for overtime pay.  On May 5, 2015, Secretary of Labor Perez announced that the DOL has submitted the proposed changes to the overtime regulations to the White House’s Office of Management and Budget (OMB) for approval.

In his blog post, Secretary Perez stated:

The rules governing who is eligible for overtime have eroded over the years. As a result, millions of salaried workers have been left without the guarantee of time and a half pay for the extra hours they spend on the job and away from their families.

We’ve worked diligently over the last year to develop a proposed rule that answers the president’s directive and captures input from a diverse range of stakeholders. After extensive research, study and careful analysis, we have submitted the proposed rule to the Office of Management and Budget for review. In the near future, the public will have an opportunity to weigh in and help us craft a final rule.

The public will not have access to the proposed changes during OMB’s review, which could take as few as two weeks, or as long as several months.  Although the DOL officially sent the proposed regulations to OMB on May 5, most likely and based on my own experience revising these regulations while serving at the DOL in 2003-2004, the DOL and OMB have been talking and exchanging drafts for months on an informal basis.  Thus, OMB will not be surprised by anything they see and likely has already approved all major changes to the overtime regulations.  Thus, a quick review by OMB is possible.

Although we can only speculate regarding the changes that the DOL will propose, one change is certain:  the agency will propose an increase in the minimum salary level required for exemption from the FLSA overtime requirements.  Currently, the threshold is $455 per week ($23,660 annually), which was set in 2004.  Prior to the 2004 increase, the minimum salary levels, set in 1975, were $155 per week with a “long” duties test and $250 per week for a “short” duties test.  Prior to 1975, the DOL had increased the salary threshold every five to ten years.

It has now been over a decade since the last salary level increase and we are due for a change.  However, the question is how big the increase will be.  The inside-the-beltway rumor is that the DOL was set to propose $42,000, but is getting pressure to go higher.  According to the union-funded Economic Policy Institute, a $42,000 salary level would make an estimated 3.5 million additional employees eligible for overtime – or about 35% of salaried employees.  EPI has advocated a minimum salary of over $51,000 – which adjusts for inflation from the 1975 short-test salary level of $250 per week – and would cover an additional 6.1 million employees or about 47% of salaried employees.  But 30 congressional Democrats sent a letter to Secretary Perez calling for a salary level of $69,000, allegedly to cover the same percentage (65%) of salaried employees entitled to overtime in 1975.  At $69,000, an estimated additional 10.4 million employees will be newly entitled to overtime pay.

EPI and other employee advocates suggest an increase based on inflation from the 1975 “short test” level of $250 per week, assuming without justification that in 1975, the DOL set the “short test” salary level perfectly.  But the actual minimum salary threshold in 1975 was the $155 per week “long test” level.  Correcting $155 for inflation would result in a new salary level of $31,720 annually – a level much more likely to be tolerated by the business community.

While we do not know much about how the DOL will propose to change the duties tests, the primary focus appears to be the executive exemption.  In particular, we expect the DOL to narrow the exemption for retail and restaurant managers and assistant managers in two ways.  First, we expect the agency to propose a California-style rule that exempt employees must spend more than 50% of their time performing exempt work.  Currently, under the FLSA primary duties test, time is an important factor but not dispositive, as primary duty is determined by looking at the job as a whole to identify an employee’s most important duty.  Employees who spend less than 50% of their time performing exempt work can still qualify for the exemption if other factors indicate an exempt primary duty.  Second, the DOL may eliminate the concept of “concurrent duties” – or when an exempt manager or assistant manager continues to perform exempt management duties even while performing non-exempt work such as running a cash register or stocking shelves.

For more information, visit the DOL's blog.

To track the progress of OMB’s review, click here.