President Obama has issued a memorandum asking the Department of Labor (DOL) to update the regulations surrounding who can legally be denied overtime in an attempt to reduce the number of people in that group.
Under the Fair Labor Standards Act (FLSA), most American workers must be paid at a rate 1.5 times their regular pay rate for any hours worked over 40 in a workweek. The law does allow for workers in executive, administrative, and professional positions to be considered exempt from overtime if they meet the "minimum salary" and "duties" tests, as defined by the DOL. These are known as the "white collar exemptions."
President Obama stated in his memorandum to Secretary of Labor Tom Perez, who overseas the DOL, that the white collar exemptions "have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to minimum wage." Therefore, he asked the DOL to:
- "Modernize and streamline" the overtime regulations to make them more consistent with the original intent of the FLSA
- Address the changes in the modern workforce
- Make them easier for both employers and workers to understand
There were no specifics in the memorandum. However, it is certain that, under this presidential decree, the DOL will increase the minimum salary requirement. According to a Fact Sheet released by the White House, this minimum has not kept up with inflation and has only been changed twice in 40 years. Currently, the minimum salary requirement to qualify as exempt is $455 per week, which is below the poverty level for a worker supporting a family of four. Someone paid at that minimum rate could even fall below minimum wage if they had to work 65 or more hours per week. The Fact Sheet also points out that, due to that salary threshold, only 12% of Americans qualify for overtime, compared with 65% in 1975. Experts expect the salary threshold to be increased to as high as $1,000 per week.
The "duties test" are also expected to be changed. Each exemption has standards for what constitutes an exempt employee based on the duties they perform. Those classified under the Executive Exemption, for example, must have a primary duty of managing the enterprise or a department or subdivision, and they must regularly direct the work of at least two other full-time employees. Those duties tests will likely become more specific, possibly dictating an exact percent of time a worker must spend doing certain duties to qualify.
Employers and recruiters will be impacted by these changes. Even if you outsource the employment of your contractors to a back-office service, there are some action items:
The DOL is expected to release proposed regulations as early as this summer, so we should have a better picture then of what they will look like once they are updated. In the meantime, we'll be sure to keep you posted.
This article is for informational purposes only and should not be considered legal advice.