On March 13, President Obama directed U.S. Secretary of Labor Thomas E. Perez to “modernize and streamline” the Department of Labor’s (DOL) overtime exemption regulations that define the scope of the exemptions under the Fair Labor Standards Act (FLSA).
Under the Fair Labor Standards Act, non-exempt workers are paid overtime for all hours worked over 40 hours in a workweek at one-and-one-half times their regular hourly wage. An employee is not entitled to overtime compensation if their job meets the requirements of certain exemptions. To be exempt from overtime pay, a job must pass one of the specific job duties tests as well as be paid a minimum salary specified by the FLSA. The specific job duties tests are the executive, administrative, professional, outside sales, and computer duties tests. Currently, the salary minimum requirement is $455 per week which was set in 2004.
According to a White House Fact Sheet, the equivalent to $455 per week in 2004 in today’s dollars is $561 per week. And due to annual inflation, only about 12 percent of workers fall below the $455 per week threshold. Approximately 18 percent of workers fell below the threshold in 2004 when the minimum salary requirement was raised from $250 per week to $455 per week, and 65 percent fell below the threshold of $250 per week in 1975.
These regulations are recognized by some states as outdated, which is why states like New York and California have set higher salary thresholds. New York state minimum exempt salary has been $543.75 per week since 2009, and was increased on December 31, 2013 to $600 per week. This will increase again to $656.25 per week on December 31, 2014 and to $675.00 per week on December 31, 2015. Exempt employees in California generally must earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment.
It is unknown what the final changes to the current regulations will be, but according to President Obama’s Memo to the Secretary of Labor, and the White House Fact Sheet, the objective is to update the existing protections to keep with the original intentions of the Fair Labor Standards Act, to address the changing nature of the American workplace, and to simplify the overtime rules to make them easier for both workers and businesses to understand and apply. The most likely targets for change to the overtime regulations are an increase to the minimum salary level requirement, perhaps even with annual adjustments for inflation, and revising some of the vague and outdated language in the job duties tests.
Many industries are expected to be impacted by the potential proposed changes, especially retail, restaurant and hospitality industries with managers and supervisors paid at the lowest levels of compensation. The healthcare industry may also be impacted as well as the Information Technology industry if the computer professional exemption is further clarified by the FLSA possibly increasing the number of non-exempt computer professionals.
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