By Presidential Memorandum: Overtime Changes Brewing

The March 13, 2014 memorandum from President Obama to the DOL Secretary, Thomas Perez, sets the stage for additional revisions to the Fair Labor Standards Act. While no specific action is addressed, the Secretary is directed to propose revisions to modernize and streamline overtime regulations. Further, the Secretary is directed to do this while considering how the regulations could be revised to update existing protections, address the changing nature of the workplace, and simplify the regulations in the process.

The last time the FLSA was amended in relation to overtime pay was 2004. During this time, the salary level to qualify as an executive, administrative, professional and computer employee (categories of “white collar” employees exempted in Section 13(a)(1)) was adjusted from $250 per week to $455 per week. In addition, changes were made to the definitions of these categories, generally making these exempt categories more inclusive. There are still requirements that, for example, the “executive” category must direct the work of two or more employees and have influence, if not direct authority to hire and fire. However, $455 a week equates to $23,660 a year, which is approximately 22% of the Washington, DC metropolitan area’s median income ($107,000).

To put the “salary test” into perspective, the $250 per week 1975 standard would be equivalent to $1,091 in 2014 dollars, whereas the $455 per week 2004 standard equates to $565 in 2014 dollars.  In 1975, 65% of employees fell below the $250 benchmark and in 2004, only 18% fell below the $455 standard. In 2014, only 12% make less than $455 per week.  DCI analyses of federal contractor data indicate that 90% of contractors’ FTE employees in 2013 exceeded the current $455 per week standard. Should the DOL revise the salary test to be consistent with either the 2004 standard ($566 [i] in 2014 dollars) or the 1975 standard ($1,091 in 2014 dollars), the percentage of employees exceeding the standard would drop to 78% and 44%, respectively.

Before any revised regulations take effect, the revisions would be subject to the normal rulemaking process, requiring a proposal, a comment period, and Office of Management and Budget (OMB) approval prior to final rule revisions being enacted. The standard rulemaking process can be expected to take at least a year, and often longer.

Regardless of the actual content of the final revised regulations, employers should expect that they will need to review job classifications for overtime determination purposes.  Employers may need to consider adjustments to job duties, base pay, or limits on hours worked per week depending on the content of the revised regulations and the results of the job classification review.

Stay Tuned!