What’s the first thought that pops into your head when someone says, “overtime?” If you’re like me, you’ll think of the bonus period the Boston Bruins get to trounce the Montreal Canadiens in pulse-pounding, heartbreaking, devastating fashion. “Quick shot from the blue line, deflects off the post, SCORE! BRUINS WIN!” A nice thought, though the concept of overtime isn’t so nice for some folks (other than Canadiens fans, that is). For many Americans, working longer than 40 hours per week without “time-and-a-half” overtime pay is an unfortunate way of life and has been for years. The Fair Labor Standards Act (“FLSA”) just doesn’t apply to them because of the work they perform or the amount of money they make. President Obama and the Department Labor, however, are trying to change this grim reality through proposed updates to FLSA regulations that could extend overtime protections to at least 5 million additional workers.
An Introduction to the FLSA and Overtime Protections
Passed in 1938 by President Franklin Roosevelt, the FLSA not only established the nation’s first minimum wage (25¢ per hour!), it also created time-and-a-half overtime pay for many employees working beyond a normal work week (40 hours, currently). The FLSA applies not only to private-sector workers but also to state and local government employees, small businesses, and non-profit organizations. All employees are covered under the FLSA – and therefore are entitled to minimum wage and overtime protections – unless they are considered “exempt” under the law.
So who is exempt from FLSA protection? A three-part test is used and if a worker falls under all three prongs he or she is considered exempt:
Prong 1: The employee is salaried,
Prong 2: The employee is paid at least a specific salary amount, which is currently $455 per week (equivalent to $23,660 annually), and
Prong 3: The employee primarily performs executive, administrative, or professional duties as defined by the FLSA and its regulations (the so-called “white collar exemptions”). Employees who work in computer or outside sales positions may also fall under this prong.
Therefore, if you are a salaried employee earning $30,000 in a job that satisfies the “administrative duties” definition, you are exempt from the FLSA and not entitled to its protections. A stark realization indeed.
What Changes Are Proposed?
First and foremost, the changes recognize that FLSA exemption was intended for well-compensated individuals by increasing the minimum exemption salary from $455 per week to approximately $921 per week, or $47,892 per year. This figure represents the 40th percentile of weekly earnings for full-time salaried workers in the USA. According to the Department of Labor, this figure will minimize the risk that employees will be misclassified, and potentially exempted, based on the salaries they receive.
Second, there is a proposed new threshold for highly compensated employees, who also are often exempt. Currently, workers are exempt if they are compensated more than $100,000 and meet a softer set of criteria similar to the white collar exemptions. Under the proposed plan, that figure would increase to $122,148.
Finally, the Department of Labor is proposing a mechanism to automatically update these salary levels going forward to ensure that they continue to provide useful and effective benchmarks for exemption. The Department of Labor states that over time (no pun intended), these salary levels become substantially less effective due to inflation, leaving workers who the FLSA should protect exempt. Automatically updating these levels will continue to accurately reflect current economic conditions.
If these proposed changes are adopted, millions of previously- exempt Americans will be eligible for overtime from their employers. Although these updates are only proposed at this time, employers should examine their overtime policies to consider any financial and wage impacts ahead of time. Even a few employees becoming eligible for overtime will affect an employer’s payroll and could have wage and tax consequences. Employers are encouraged to speak with experienced FLSA attorneys, like those at Conn Kavanaugh, if they have any questions.