President Orders Changes to Labor Regulations to Expand Overtime Pay

An estimated 10 million workers stand to benefit from President Obama’s recent directive ordering the U.S. Department of Labor (DOL) to update its regulations making more workers eligible for overtime pay.

While the March 13, 2014 presidential memorandum did not specify exactly what the new rules should include, the President's comments make it clear this move is intended to expand the number of workers eligible for additional pay when they work more than 40 hours per week.

The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt (hourly) employees time-and-a-half in overtime pay for working more than 40 hours per week. Bona fide executive, administrative and professional sales employees are exempt from the overtime-pay provision of the law.

However, the salary threshold for this "white collar" exemption has failed to keep up with inflation, denying as many as 88% of salaried workers overtime pay if they spend any time supervising other workers. Last updated in 2004, the salary threshold currently prevents exempt employees from receiving overtime if they earn more than $455 a week — approximately $24,000 per year.

While it is unclear how far the DOL will take the proposed revisions, the new regulations are expected to propose an increase in the minimum salary threshold to somewhere between $550 and $970 per week. It is also anticipated that a more restrictive duties test will be implemented — particularly for the executive exemption — so that fewer employees will  qualify as exempt managers under the FLSA .

Although the DOL is expected to move quickly, it is unlikely that any new regulations would go into effect before the end of 2014. Absent political opposition, the process may be completed within about one year.

This directive has the potential for significant changes to FLSA compliance. Employers are advised to stay up-to-date on FLSA requirements to ensure they adjust their overtime policies accordingly.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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