Changes to Overtime Rules Will Impact Employers and Employees Alike

This past March, President Obama issued a Presidential Memorandum directing the U.S. Department of Labor to “propose revisions to modernize and streamline the existing overtime regulations” in the Fair Labor Standards Act (FLSA).  This follows on the heels of the president’s statement in his 2014 State of the Union address to that he intended to use his executive authority where possible to advance elements of his economic agenda, including increasing the minimum wage and raising compensation for workers generally.


The president’s memorandum specifically asks for the revisions to the “white collar” exemptions to overtime pay requirements because “the Act’s overtime requirement, particularly for executive, administrative, and professional employees have not kept up with our modern economy.”  Given this language, it is fairly clear that the intent is to have the Labor Department issue final rules which will reduce the number of employees who can qualify for exemptions for overtime pay.


For employers in California and across the country, these changes to the FLSA’s overtime exemptions will have a big impact on how they structure the compensation schemes and define job responsibilities for thousands of employees. The Department of Labor will not issue final rules until after what is expected to be a lengthy and robust period of public comment. California employers need to monitor these developments closely over the coming months.


“White Collar” Overtime Exemptions Under Existing Law


The FLSA currently requires employers to pay most employees overtime pay at time and-a-half their regular pay rate for hours in excess of 40 in a week. However, employees who are employed as “bona fide executive, administrative, professional and outside sales” employees (as well as some computer employees) are exempt from this requirement pursuant to Section 13(a)(1) of the FLSA.


In order to qualify for the “white-collar” exemption, employees must be paid a salary of at least $455 per week. Additionally, in order to be exempt, an employee’s duties must include managing a part of the business and supervising other employees or exercising independent judgment on significant matters or matters that require advanced knowledge. Significantly, job titles alone do not determine whether employees are “white-collar” under the exemptions.



Revisions to Minimum Salary and Job Responsibility Rules Expected To Be Revised


The last revisions to the overtime exemptions came in 2004, when the Bush administration raised the minimum qualifying salary level from $155 a week to $455 a week and changed some of the requisite job duties that would fall within the exemption.


This round of anticipated changes to the exemptions will likely focus on raising the minimum qualifying salary level as well as narrowing the definitions and extent of the job responsibilities that can make an employee exempt.  This could include setting a specific floor on the percentage of time an exempt employee must spend performing “management” responsibilities as part of his job duties in order to qualify.


While, as noted, the final rules will not be known for some time, it is likely that California employers will be confronted with a fundamental choice regarding their compensation schemes: 1) prepare for a larger number of employees who will be entitled to overtime pay, or 2) prepare to raise the salaries of some employees in order to lift them above the higher threshold required to exempt them from overtime pay requirements.


California Employment Lawyers

At Lucas & Haverkamp, we stand for honesty and fairness. We incorporate these qualities into everything we do. Our employment law practice is multifaceted – and with good reason. By representing both employers and employees, we bring twice the knowledge and experience to the serious issues that challenge business owners and the people they employ. Contact us today at (858) 535-4000 to discuss your case.

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