As expected, today President Obama directed the Department of Labor to review and revise the regulations that govern the Fair Labor Standards Act (FLSA). The President said he directed the review “to give more Americans the chance to earn the overtime pay that they deserve.”
The Fair Labor Standards Act was originally passed in 1938 and requires employers to pay most employees overtime pay at a rate of time and a half for all time worked in excess of forty hours per week. However, Section 13(a)(1) of the FLSA provides an exemption from overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees (so-called “white-collar” positions). To qualify for the “white-collar” exemption, employees must be paid at least $455 per week on a salary basis and their job duties must meet specific tests. In general, their duties must include managing a part of the enterprise and supervising other employees or exercising independent judgment on significant matters or require advanced knowledge.
The President’s remarks clearly take aim at the $455 per week threshold. According to the White House, “only 12 percent of [current] salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections (compared with 18 percent in 2004 and 65 percent in 1975).” The President also noted that the threshold has been only been changed twice in the last 40 years–once in 1975 and once in 2004. According to Bloomberg News, the 1975 threshold of $155 is the equivalent to $970 in today’s dollars whereas the $455 amount set in 2004 is the equivalent to $553 in today’s dollars.
In addition to increasing the salary threshold for the “white-collar” exceptions, it is expected that the Department of Labor will seek to narrow the duties that qualify employees as exempt. The jobs duties tests went through major revisions under President George W. Bush in 2004. However, the regulations are often criticized by employee groups as being overly broad and allowing employers to give employees minimal executive or administrative tasks to avoid paying the employees overtime. It is expected that the Obama administration will push for rules similar to those in place in California which require employees to spend a certain percentage of their time on “exempt duties” before they qualify for the “white-collar” exemption.
What does this mean for employers?
No doubt the changes to FLSA regulations could affect millions of workers and employers. The FLSA protects 135 million workers in more than 7.3 million workplaces nationwide. However, none of the changes sought by President Obama will happen overnight. In fact, it is expected that any changes to the FLSA regulations will take years to complete and become effective. However, one likely effect of the President’s remarks and directive–and the extensive press coverage of them–will be increased litigation over whether employees are properly classified as exempt under the current regulations.
FLSA claims are already the biggest litigation threat to employers. In fact, in 2013 the amount of FLSA claims filed increased by 10% over 2012 according to Federal Judicial Caseload Statistics and have increased by roughly 400% since 2000. Another concern for employers is that many Employee Practices Liability (EPLI) policies specifically exclude overtime claims. Thus, employers must be especially vigilant about overtime classifications.
Employers are encouraged to review their overtime classifications and job descriptions to make sure that they comply with the current state and federal overtime laws. If you have any questions or would like more information on these or other employment issues, please contact Julie Kinkopf, Esquire at 610-660-7786 or firstname.lastname@example.org.
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Julie Kinkopf, Esquire is principal of Kinkopf Law LLC and is an accomplished attorney who has represented employers for over 15 years. Ms. Kinkopf helps businesses develop sound employment practices and provides training to supervisors and employees designed to avoid litigation and government audits. She also represents employers before various governmental agencies as well as in state and federal courts in post-employment litigation, including discrimination, retaliation, pay disputes and non-compete/trade secret matters. More information may be found at www.kinkopflawfirm.com or www.linkedin.com/in/juliekinkopf/