A closer look at the expansion of overtime

published in McAfee & Taft EmployerLINC | March 20, 2014

By Charles S. Plumb

Last week’s announcement by President Obama of a planned increase to the number of employees who would be entitled to receive overtime pay set off a barrage of reactions. Now, let’s take a closer look at what it is all about.

The current rules

Presently, white collar employees who fall under the “executive” or “administrative” exemptions under the Fair Labor Standards Act’s (FLSA) regulations are not entitled to earn overtime pay when they work more than 40 hours during a workweek. The executive or administrative exemption from earning overtime pay applies to individuals paid a weekly salary of at least $455. They must perform office or non-manual work, exercise independent judgment, and have supervisory duties.

Expansion of overtime pay

overtimeOn March 13, 2014, President Obama directed the Department of Labor to establish new overtime rules requiring employers to pay a greater number employees for overtime work. Although the president’s directive did not lay out the specifics of the new rules, the Department of Labor was instructed to develop regulations so that some salaried employees earning $455 per week, who are currently ineligible for overtime pay based upon their supervisory duties, would in the future earn additional overtime pay for hours worked in excess of 40. According to President Obama, this initiative is intended to reduce “economic inequality” and provide a right to additional overtime pay for individuals who have limited managerial and supervisory duties. Many commentators believe this announcement was intended to coincide with the upcoming mid-term congressional elections.

The overtime change ahead

This expansion of the right of employees for overtime pay is coming through executive action. There will be no congressional action or any vote by Congress. Procedurally, the Department of Labor will announce new overtime rules and invite comment by the public and employers. We should anticipate significant opposition to an expansion of overtime coverage by employer groups. Thereafter, the Department of Labor will issue final rules. It is anticipated that changes to overtime payment obligation for employees will not go into effect until sometime during the fall. More than likely, the new rules will increase the $455 per week threshold to a higher salary amount before an employee is covered by the white collar exception for overtime pay and/or require that a higher percentage of time must be actually spent on supervisory duties. Presently, two states have higher salary threshold amounts in order for employers to avoid liability for overtime pay – California ($640 per week) and New York ($600 per week).

Some of the jobs most likely to be affected by the anticipated expanded overtime pay rules will be in the retail and food service industries, as well as loan officers and managers in computer or information systems departments. The new rules will add several million employees to members of the workforce entitled to overtime and will result in significant increases in payroll costs for employers.

We will continue to follow developments of the new, expanded overtime rules.