In an unexpected move, the Obama administration officially announced today that it will issue a Presidential Memorandum to the U.S. Department of Labor (DOL) instructing its Secretary to update regulations regarding overtime protection for workers under the Fair Labor Standards Act (FLSA), the federal law that establishes minimum wage and overtime pay requirements. Any changes to the regulation would be the first since 2004, when the Bush administration increased the minimum weekly salary for overtime-exempt workers to $455 per week.
While the FLSA requires employers to pay most employees overtime pay, Section 13 provides an exemption from overtime pay for employees employed as bona fide executive, administrative, professional, and outside sales employees (commonly referred to as the “white collar” exemptions). Under current regulations, to qualify for the “white-collar” exemptions, employees must be paid at least $455 per week on a salary basis and their job duties must meet specific tests outlined in DOL regulations. However, job titles alone do not determine whether employees are exempt from the overtime requirement. In general, “exempt” employee duties must include managing a part of a business, supervising other employees, exercising independent judgment on significant matters, or utilizing advanced knowledge. This latest initiative is expected to seek to tighten the qualifications for these white collar exemptions to make it more difficult for employers to avoid paying overtime.
While promising to order a full modernization of existing regulations, the fact sheet released by the White House focuses on the salary threshold and indicates this amount will be increased. In particular, it notes that the $455 amount, up from $250 in 1975, is the equivalent of $561 in today’s dollars, and observes that states like New York and California have set their own, higher salary thresholds. The Presidential Memorandum also will direct the Secretary of Labor to “simplify” overtime rules to make them easier to understand and apply.
Many consider President Obama’s insertion into the regulation process as a political maneuver intended to bypass Congress as part of his larger agenda of raising the minimum wage and job and economic growth. Whether the DOL seeks to raise the income threshold or tighten the duties requirements (or both), any such move will likely have a substantial impact on employers by expanding the range of workers entitled to overtime pay. While employers must view this initiative with caution, the impact is not likely to be immediate. Employers should have some time to prepare for (and respond to) whatever proposal is ultimately unveiled by the DOL. The 2004 revisions to the FLSA regulations took the DOL nearly two years to implement from the preparation of initial draft changes to sifting through tens of thousands of public comments and following protocols established by the Office of Management and Budget for final approval. Nonetheless, with less than two years left in the Obama administration, we will keep a close watch for announcements about proposed rule changes and provide further guidance as appropriate.