In a recent memorandum, President Obama directed the Department of Labor (“DOL”) to devise new regulations for determining overtime eligibility so as to expand the number of employees eligible for overtime. The President intends to achieve expanded eligibility by altering the standards for determining which employees are “exempt” from the overtime provisions of the Fair Labor Standards Act (“FLSA”). The President reportedly issued his directive in response to wage stagnation in the face of increasing corporate profits.
Currently, the FLSA requires employers to pay employees who work more than 40 hours in a workweek at a rate equal to time and a half for those hours worked in excess of 40. Certain categories of employees are exempt from the OT rules, including certain white-collar employees, managers, executives, professionals and certain other administrative employees. Exempt employees must meet certain tests applicable to their specific category of exemption. All exempt employees must meet the “salary-basis test,” however. To satisfy this test, an employee must be paid at least $455.00/week – or $23,600.00/year.
The DOL is expected to reexamine the salary-basis test in reforming OT rules and reconfiguring FLSA exemptions. That test hasn’t changed since 2004. And prior to that, the amount needed to satisfy the test had not been changed since the 1970s. Commenting on this issue, the DOL has remarked that the exemptions haven’t kept pace with “our modern economy” and therefore the classification scheme (for exempt and nonexempt employees) must be examined and reformed.
Additionally, reports indicate that the DOL may also amend the “primary duties” requirements for certain exemptions. That portion of the exemptions looks to the primary duties an employee performs in determining whether he/she is properly classified as exempt. Some commentators expect the DOL’s new regulations to require an employee to dedicate a certain percentage of time to performing exempt work (e.g. executive work). Such a change would address criticism from some sectors that employees are improperly classified as falling within the exemption for executive employees – an exemption that requires the employee to supervise 2 or more employees – when the exempt employee spends only a fraction of his/her time supervising others. Changes to the FLSA’s regulations can be made by the DOL without congressional approval.
When and if the regulations are amended, their release and implementation could cause major changes in the way companies classify their workforce. Any amendments will require employers to again carefully review their classification of each employee (or category of employee) to ensure the regulations’ requirements are met. And any addition to those eligible for OT will require additional administrative oversight for employers.
For further information on the proposed changes, classification of employees under the FLSA, or general OT issues, please contact Erin E. Byrnes of the Udall Law Firm at 602.606.2111.
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