by Susan Prince
The U.S. Department of Labor (DOL) has submitted proposed changes to the Fair Labor Standards Act’s (FLSA) overtime regulations to the Office of Management and Budget (OMB) for review. The new regulations will increase the number of employees nationwide who qualify for overtime. Employers, get ready because the changes will likely have a substantial effect on your workforce. Many employees who qualify for an exemption from overtime right now will be entitled to overtime once the regulatory changes are finalized.
How we got here
On March 13, 2014, President Barack Obama issued a presidential memorandum directing Secretary of Labor Thomas Perez to begin the process of addressing overtime pay protections to increase the number of workers who are eligible for overtime. In May 2014, in its Semi-Annual Regulatory Agenda (under section “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees”), the DOL announced that it was directing the secretary to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees.” According to the agenda, proposed rules were originally due in November 2014, but they were delayed.
Perez has just announced that the proposed regulations have been submitted to the OMB for review. The review process can take 30 to 60 days or even longer in some cases.
What the changes will look like
The DOL’s changes to the regulations will increase the number of employees who qualify for overtime in several ways.
First, it’s very likely that the agency will increase the salary threshold required for an exemption or even double it. The current salary threshold for white-collar employees is $455 per week. If the threshold increases, more employees will be entitled to overtime.
Second, the DOL may make the duties test more difficult to satisfy. The overtime regs require employees to perform certain duties to be classified as exempt. An exempt administrative, executive, professional, computer, or outside sales employee must have as his primary duty work that meets the first requirement of the standard duties test for the particular exemption. A determination of whether an employee satisfies the primary duties test is based on all the facts in a particular case. The amount of time spent performing the required duties is a key factor.
Third, the DOL may impose a hard-and-fast minimum 50% time requirement on exempt primary duties. Currently, “primary duty” means a responsibility that occupies more than 50% of an employee’s time. Time alone, however, isn’t the only test. For example, an employee who doesn’t spend more than 50% of her time on managerial duties might still have management as her primary duty if other pertinent factors are present. Those factors include:
- The relative importance of the executive duties compared to other types of duties;
- The amount of time spent performing exempt work;
- The employee’s relative freedom from supervision; and
- Whether the employee’s salary is greater than the wages paid to other workers for the kind of nonexempt work performed by the employee.
If a hard-and-fast minimum 50% time requirement is imposed on exempt primary duties, those factors will no longer play into the analysis.
Cost to employers
Most employers will be affected by the changes to the FLSA regulations. In addition, most businesses will incur costs from the changes. Some costs will be one-time implementation costs, and other expenses will be ongoing. Employers and HR professionals will face a variety of increased costs once the regulations are issued, including:
- Devoting time to reading and understanding the new regulations;
- Updating corporate overtime policies to comply with the changes;
- Communicating with employees about the benefits of qualifying as exempt or nonexempt;
- Reviewing job categories and job descriptions to classify them as exempt or nonexempt;
- Paying overtime to employees who exceed the current salary threshold of $455 per week but will fall below the new salary level (yet to be announced);
- Increasing the salaries of some employee groups to raise them above the salary threshold to classify them as exempt; and
- Facing lawsuits by employees who claim they qualify for overtime under the FLSA
Conduct a self-audit
To ensure that your company won’t be subject to an FLSA claim or a DOL audit, conduct an internal audit after the proposed regulations are released. Review job descriptions to determine whether they are still accurate and reflect the duties being performed and the skills necessary to perform the job.
Do you have the required posters in the appropriate places in your workplace? That is an easy violation for DOL investigators to spot when they walk through the doors of your company. Make sure you have properly calculated overtime for nonexempt employees, and pay overtime owed to employees you misclassified. Paying them now will be far less expensive than paying them in a DOL settlement or class action lawsuit.
Susan Prince, JD, is a legal editor with BLR—Business & Legal Resources. She can be reached at sprince@blr.com.