In something of a surprise, news has leaked out that the Obama Administration will direct the Department of Labor to tighten regulations regarding overtime exemptions under the Fair Labor Standards Act (FLSA). It does not take a Shakespearian soothsayer to accurately predict that many employers will be up in arms about this directive; any initiative converting potentially millions of currently overtime-exempt workers to non-exempt status (meaning they must be paid time-and-a-half for all hours over 40 in a workweek) will not be taken lightly.
I say this is something of a surprise because the DOL’s recent focus has been on the misclassification of employees as independent contractors. Indeed, the DOL’s formal agenda has been silent as to FLSA overtime regulations.
In any event, those DOL regulations, which were overhauled in 2004 (when the much less controversial revisions still generated tens of thousands of public comments), set the parameters for who qualifies as exempt under the FLSA’s overtime laws. These exemptions are often referred to as the “white collar” exemptions, and generally excuse employers from paying overtime to certain administrative, professional, executive, and outside sales workers, along with some computer professionals. There is an income threshold for these exempt workers, as well as a “duties test” under each category, which often require one’s duties to involve (depending on the specific exemption) managing others, discretion and independent judgment, administrative work (as opposed to manual labor), and the like.
This initiative fits with President Obama’s agenda to increase wages (such as the push to raise the minimum wage) and appears to be an attempt to make good on the administration’s State of the Union promise to unilaterally bypass Congress to try to spur economic growth – an extremely controversial tactic that the White House has used numerous times when the President has deemed Congress intractable.
With regard to possible changes, although the income threshold could be raised, at least to some extent, without much effect on who remains exempt (the threshold is currently only $23,660/year), the more significant changes would involve the duties element of the exemption. Changing the requirements here, such as mandating that at least 50% of an employee’s time be spent on exempt duties to be eligible for the exemption (as California state law requires), could have a huge impact on the employer-employee relationship. Prognosticators believe that the retail and restaurant businesses may have the most to lose under a tougher regulatory scheme.
Both sides of the aisle are already staking out their positions, so we can expect heated exchanges regarding what will surely be a red hot topic. While unions have touted the move as an “important step towards raising wages,” management-side attorneys have pointed out the potential unintended consequences of forcing employers to pay more overtime – either cutting jobs or strictly limiting employee hours to no more than 40 per week.