USDOL Evaluates Changes to Overtime Regulations
In March of this year, President Obama instructed the USDOL Secretary to “modernize” the overtime regulations: http://www.whitehouse.gov/the-press-office/2014/03/13/presidential-memorandum-updating-and-modernizing-overtime-regulations. In particular, the President noted that the traditional white collar exemptions “have not kept up with our modern economy.” As a result, the President asked that the regulations be revisited.
Since that time, the USDOL has been working on draft changes. As of today, we expect that the draft changes to these regulations will not be sent to the OMB’s Office of Information and Regulatory Affairs (OIRA) until after the mid-term elections this November. OIRA will then begin a 90 day review before the proposed changes are published by USDOL sometime early next year. Although the review and comment period usually lasts 90-120 days on proposed regulations, we expect that several pro-business entities will ask for the comment period to be lengthened while lobbying ensues. The USDOL, however, will likely aim to have the new regulations implemented by the start or middle of 2016.
So what changes are expected? The largest change on the horizon will likely be a proposal to dramatically lift the salary basis threshold for “white collar” employees. Presently, employees must earn a weekly salary of at least $455 to qualify for the traditional white collar exemptions (professional, executive and administrative) to the Fair Labor Standards Act. The $455 threshold, or $23,660 annually, was established back in August of 2004. Before the basis was lifted in 2004, the threshold was set at $155 weekly. As a result, the raise at that time was seen by most as a needed elevation in order match inflationary measures.
The USDOL is expected to lift that threshold again in the new regulations. How much? Presently, we understand that the USDOL is considering an increase from $455/week to a range of $800-$975/week. On an annualized basis, the change means that while workers can now qualify for a white collar exemption with salaries as low as $23,660, the new regulations would require employers to either pay overtime or lift the base salary level for exempt employees to somewhere between $41,600-$50,440, unless the employer is exempt from the Fair Labor Standards Act.
Because the new regulations will not roll out immediately, businesses have some time to anticipate a change. For example, companies can evaluate which salaried employees fall within the range of $23,660-$50,000 and assess the hours they work over the next several months. The company can then estimate how much overtime those employees would accrue if the position were no longer exempt and how many dollars should be allocated to wages in the future. If employees in that salary bracket regularly work well in excess of 40 hours a week, employers can plan on increased compensation or, alternatively, consider changes to operations or staff scheduling. If your Employee Handbook requires prior approval of overtime and the provision has been largely ignored, maybe now is a good time to begin to reinforce the policy so that it can be useful if more workers become entitled to overtime when the new regulations become final. In sum, companies can now evaluate proactive measures so that workflow and compensation structure are not suddenly jolted by the change.