New FLSA Regulations Set to be Released in First Quarter of 2015 Likely to Change America’s Overtime Pay Landscape

In March 2014, President Obama issued an Executive Order directing the Secretary of Labor to “update and modernize” the overtime exemption rules under the Fair Labor Standards Act (FLSA), (the "Act"), 29 U.S.C. 201 et seq., a federal law that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards in the private sector and in Federal, State, and local governments. These new regulations, forthcoming by the United States Department of Labor, are set to be released in the next several weeks

Although they have not yet been revealed in any detail, the proposed regulations have captured the concern and interest of labor unions, employer groups, and academics. And for good reason - the proposed regulations, if enacted, will impact both large and small businesses across the country and allow millions of previously exempt employees to be eligible for overtime pay.

As the law currently stands, workers covered under the Act must receive overtime pay of at least 1.5 times their regular pay rate if they work more than forty (40) hours per week. However, Section 13 of the Act provides an exemption from overtime pay for "white-collar" workers. In order to be deemed a “white-collar worker,” the employee must carry out executive, administrative, or professional duties and receive a salary of at least $455 per week (or $23,660 per year). This exemption has not been revised since 2004.

Many commentators believe the proposed regulations will significantly increase the salary threshold required to render an employer exempt from overtime pay requirements. In fact, some even believe that the U.S. Department of Labor will double this salary threshold to somewhere between $42,000 and $52,000 per year.

Proponents of this increase suggest that “[b]olstering overtime protections will help the middle class - a group that could use a little help right about now.”[1] A contingent of economists wrote to Labor Secretary Thomas Perez, reasoning that inflation has increased the number of people who earn too much to receive overtime pay. The group suggested that an increase of the threshold to $50,000 (that is, employees earning more than that amount would be exempt from overtime pay) would be congruent with actual professional status and avoid negative effects on the economy.[2] However, not all commentators are on board with the proposed increase. Some fear that “new rules will undoubtedly result in greater expense or operational change for many employers as they struggle to deal with a shrinking population of those who are exempt from the overtime pay requirements of the FLSA.”[3]

Another possible change in the FLSA regulations would tighten the rules regarding which “duties” an overtime-exempt employee may undertake. Presently, the regulations require overtime pay unless the employee performs administrative, executive, professional, or creative tasks. To be exempt, employees must work with discretion and independent judgment, perform managerial functions, complete duties requiring advanced technical knowledge, or complete inventive and imaginative tasks. However, the current rules have little to say about how much of the work must be in these categories.

Some commentators believe the FLSA rules, as they currently stand, will be reworked to require that a certain percentage of an employee’s time be spent on managerial or professional tasks. For example, some presently exempt employees spend much of their working hours doing non-managerial work, such as stocking shelves at retail stores. The changes might minimize the amount of time a manager could do such tasks. This change would increase costs by requiring more lower-level workers to replace the managers in the less complex work, but proponents argue that forcing managers to manage for larger portions of their work keeps exempt jobs more in line with traditional notions of salaried work: high-level mental tasks performed by managers.

A close eye should be kept on the course of these proposed FLSA regulations – as they have the potential to have tremendous practical, as well as legal, effects for all employers. Even before the Department of Labor reveals the new rules, employers should review how they currently classify employees and develop contingency plans in order to ensure compliance if and when the new regulations become effective. Employers should also plan for “duty” law changes by analyzing how employees could be reassigned to distinguish managers and non-managers while avoiding excessive salary costs.

If you or your institution has any questions or concerns regarding employment related issues, please contact Hayley B. Dryer at hdryer@cullenanddykman.com or at 516-357-3745.

Thank you to Nathan Boone, an intern at Cullen and Dykman, for his assistance with this blog post.

[1] Editorial Board, Our Opinion: It’s Past Time to Update Overtime Rules, The Brattleboro Reformer (Feb. 6, 2015), http://www.reformer.com/opinion/ci_27477293/our-opinion-its-past-time-update-overtime-rules.

[2] Jared Bernstein, et. al, Dear Secretary of Labor Thomas Perez, Economic Policy Institute (2015), http://www.epi.org/action/overtime2015/.

[3] Michael V. Abcarian, White Collar Exemption Changes May Increase Labor Costs, Law 360 (Jan. 26, 2015), http://www.law360.com/articles/611990/white-collar-exemption-changes-may-increase-labor-costs.