Perhaps you’ve been hearing the news about proposed changes to overtime pay and wondering how it might affect your organization. The truth is, we don’t yet know exactly how much of a change the Department of Labor (DOL) will make, but we know change is coming. Here are the basics on what is happening.
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Exemptions: Current Status
Right now, the primary exemption categories—the executive, administrative, and professional exemptions (often called the “white collar” exemptions)—have both a duty requirement and a salary requirement.
- The duty requirement (naturally) outlines the duties that an employee must perform in order to qualify for an exemption, and they vary depending on the exemption in question.
- The salary requirement states that the employee must be paid on a salaried basis and must make at least $455 per week, which equates to $23,660 per year.
In our current economy, this salary level ($23,660 or higher) encompasses approximately 88% of all workers—leaving only 12% of workers protected by overtime pay rules. By contrast, when the exemption regulations were originally implemented about 65% of workers were protected by overtime pay rules.
Why the dramatic shift? Because of how broad the exemption duties are and how much the U.S. economy has evolved into a service economy, many more employees fall under the exempt status than when the regulations were implemented 40 years ago.
Exemptions: What Is Under Consideration?
The salary level has only been changed once since it was implemented in 1975, and it is not currently indexed to move with inflation. This means it does not keep up with changing prices.
The reason there are changes in the works now is because the Obama administration issued a memorandum in 2014 instructing the DOL to review the exemption salary requirements. The assumption as of now is that the level will increase from current levels, but it is not yet known by how much. Estimates range from $42,000 to $52,000 per year.
Any change—no matter the figure—will affect millions of employees across the U.S. There are millions of employees currently falling into these “white collar” exemption categories, so any change that pushes the figure above the current $23, 660 will mean that those employees who make less than the new salary requirements will either have to be paid overtime, or will have to be paid at or above the new level to retain the overtime pay exemption.
The other possible change under consideration is an updated definition of who qualifies for an exemption under the primary white collar exemptions. This also has the potential to affect millions of employees because the regulations are currently quite broad and include a large segment of the service industry. In fact, many lower-level employees are given nominal supervisory duties in order to qualify for the exemption.
This coming change (whether it is a change to the salary level, the exemption rules, or both) is something that can be implemented directly via the DOL—it does not require Congress to pass any kind of new regulation. The DOL has already submitted its proposal to the Office of Management and Budget, and an official announcement is expected soon. After the announcement, there will be a period for comments from the public.
Two Sides of the Coin
Proponents of this change point to the fact that the overtime exemption levels haven’t changed in far too long and have not kept up with how much inflation has caused rising prices. They note that the current salary level is actually very close to the poverty line for the average family—which is not in keeping with the intent behind the law. By moving the salary requirement closer to the median income in the United States, salaries will increase to the level they would be if they had simply risen along with inflation since the law’s inception (if you do the math, the minimum salary would have risen to $50,440 when adjusted for inflation). Proponents say such a change will help pull millions of families out of poverty by expanding who is eligible to receive overtime.
It is also argued that the current situation results in many employees being asked to work long hours without extra pay—pushing their effective hourly rate below minimum wage in many cases. This was also not the intent of the original regulation.
Yet another argument for making this change: If employers cut overtime hours as a result, this would benefit employees who will not be expected to sacrifice as much family or free time for the same pay.
Those opposed to a change in overtime exemption regulations argue that it will make labor unaffordable for many businesses, which could have ripple effects. They express the concern that employers may be forced to cut hours or reduce hiring, and the changes will also create confusion for employers looking to stay in compliance.
What’s your take? Is your organization prepared to update employees’ exempt status?
This article does not constitute legal advice. Always consult legal counsel with specific questions.
About Bridget Miller:
Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.