Made you look, didn't we? It may be tourney time, but no, we're not talking basketball. We're talking overtime pay. In a move that has many employers and employer groups seeing red, President Obama issued an executive order on March 13, 2014, directing the Department of Labor to "modernize and streamline the existing overtime regulations" under the Fair Labor Standards Act (FLSA). Contrary to some initial media reports, this did not immediately change current requirements for exemptions from overtime pay, but there is little doubt that is where the game is headed before the final horn sounds…and employers aren't cheering.
The President's order makes clear the Administration's belief that the current FLSA exemption regulations are outdated and need to be modified in ways that will vastly increase the number of employees eligible for overtime pay, in particular targeting positions currently classified as exempt under the executive, administrative and professional exemptions. Currently, one requirement to qualify for one of these exemptions is that the employee must earn a salary of at least $455 per week. That amount has been in place since 2004, when the FLSA white collar exemption regulations were overhauled under President George W. Bush. The White House argues that, adjusting for inflation, that amount equates to $561 in 2014. However, it is widely anticipated that the Department of Labor will increase the threshold significantly beyond that, perhaps to as much as $1,000 per week.
This change alone would lead to overtime eligibility for employees in millions of positions currently qualified as exempt. At the current rate, an employee's salary need only be $23,660 a year or more to qualify for exempt status (assuming other exemption requirements are met). If the threshold is raised to $1,000 per week, then an exempt employee currently making $41,000 a year would no longer be exempt from overtime unless her salary was raised to $52,000 a year or more. Given the number of employees currently employed at rates between $23,660 and $51,999 per year, the scope of this change, in terms of number of positions affected and the dollars involved, is significant. Employers will face the possibility of paying higher salaries to move employees above the new exempt threshold, leaving salaries the same but paying overtime, or terminating these workers.
In addition to increasing the salary requirement, it is also likely that the Department of Labor will modify the "job duties" requirements under the white collar exemptions. Among some of the positions mentioned as examples likely to become overtime eligible are fast-food managers, loan officers and certain types of computer technicians.
Any changes are unlikely to take effect this calendar year, as the Department of Labor is required to draft and publish proposed regulations, and give the public, including employers, business groups and unions, opportunity to comment before it issues final regulations.
However, employers can and should take some steps now to prepare. First, employers should continue to carefully monitor this issue. Second, once the proposed regulations are issued, interested employers should submit comments addressing problems and concerns. In the meantime, employers should review their own operations for wage and hour compliance and ensure all roles are appropriately classified as exempt or non-exempt under the current regulations.
While any changes to the regulations will only apply prospectively, plaintiffs' employment counsel will likely continue to pursue cases under the current regulations for the next several years, particularly since the FLSA has a lengthy limitations period (in most exempt/non-exempt disputes it is three years). An increase in the number of non-exempt employees eligible for overtime compensation under the new regulations will only increase the volume of wage and hour lawsuits, which have been on the rise over the last decade.
They say "defense wins championships," and when it comes to wage and hour compliance, preparing a good defense can help employers avoid the upset.