Department of Labor Introduces Overtime Expansion Plan

This week the Department of Labor unveiled a proposed rule that would extend federal overtime pay to cover an additional 4.6 million employees.  This extended coverage would result from raising the minimum salary threshold required to qualify for the Fair Labor Standard Act’s “white collar” exemptions from the current amount of $23,660 per year to $50,440 per year.  The $50,440 salary requirement equals the 40th percentile of weekly earnings for full time, salaried workers.  The proposal also includes annual adjustments to the minimum salary threshold based on the same calculation.  If implemented, this will be the first time the salary requirement for white collar exemptions would be updated annually.  By comparison, there have only been two adjustments in the last forty years.

White collar exemptions are based on a worker being paid a fixed salary that equals or exceeds the minimum threshold.  In addition, the worker’s “primary duty” must be the performance of exempt work.  The Department of Labor did not make specific proposals to modify the so-called “duties” test, although it is soliciting comments over whether the current tests are working as intended.  The Department specifically sought comment about the possibility of adopting the California standard which requires that workers spend at least fifty percent of their time performing exempt work.

The reforms are expected to hit retail industries and restaurants the hardest.  However, the proposal is robust enough to cut across industries and will bring many workers either more pay or more time off.  Once the changes take effect, employers will face choices regarding the workers who are newly eligible for overtime pay.  They can either pay the new salary amount, pay an overtime premium for the extra hours worked, or maintain the employee’s hours below forty per week.

Unlike the process to approve an increase in the minimum wage, the new overtime rules will not require congressional approval.  Because the new rule will take several months to finalize, including the sixty day public comment period that the proposal is currently undergoing, the changes are not expected to go into effect until 2016.