Overtime Rule Change For White Collar Workers

On March 13, 2014, President Obama signed a presidential memorandum, instructing the Secretary of Labor to update overtime regulations. The proposal would amend the regulations related to the Fair Labor Standards Act (“FLSA”) to make overtime compensation available to a larger pool of employees who are currently exempt from federal overtime requirements. It is estimated that if implemented, this change could affect millions of workers who work more than forty hours in a workweek.

The proposed rule change may extend the availability of overtime compensation to employees currently classified exempt from overtime which could include workers such as store managers, restaurant managers, certain office workers and potentially others. Currently, workers meeting the requirements of executive, administrative or professional employees are exempt from being paid overtime if they are paid a fix salary of at least $455 a week and meet certain requirements pursuant to the Department of Labor regulations. The White House’s position is that inflation has eroded the $455 a week salary requirement below the poverty line and has recommended increasing the $455 per week minimum salary threshold, which may be doubled under the new regulations.

It is anticipated that the changes may also affect the “duties test” for the executive exemption. Currently, under the “duties test,” a manager is permitted to perform non-exempt duties for a majority of the day without losing the exemption as long as the primary (or most important) duty is management. Potential changes could require that a manager spend a larger percentage of his or her time performing executive or management duties in order to be classified as exempt. For instance, a store manager who performs non-managerial tasks for a majority of the day, such a stocking shelves and performing cashier duties, may not qualify as exempt and may be entitled to overtime compensation under the new regulations.

It will likely be many months before these proposals become final regulations, as they will have to go through the notice and comment period required under the Administrative Procedures Act. When changes were made to the FLSA in 2004, it took in excess of a year for the proposed changes to become effective.  Because the presidential memorandum leaves much room for interpretation, it is difficult to predict the extent of changes that the Department of Labor will implement.

For more information on this new memorandum or any other employment law issues, please contact Elaina Smiley or Gary Sanderson.