March 18, 2014

President Obama Directs DOL To Overhaul Federal Overtime Regulations

Ordinarily, changes to federal overtime regulations get very little notice in California since our State’s overtime laws are far more protective of employees than the federal Fair Labor Standards Act (FLSA).  But President Obama’s proposed changes to FLSA regulations, announced on March 13, 2014, are causing shockwaves to be felt even in California. When the FLSA regulations are modified, California employers are going to have to reconsider whether salaried employees meet the new requirements.The White House notes that under the current regulations, salaried workers may not be entitled to overtime even if their pay falls below the hourly minimum wage or below the federal poverty level.  The President has not spelled out exactly what regulatory changes he is seeking.  It appears, however, that at least one change is certain – raising the weekly salary threshold for exempt status.  And that is the one change that could have the greatest effect in California and around the country.

The federal minimum salary for exempt status is currently $455 a week, which translates to an annual salary of $23,660.  This salary threshold was set in 2004, from the previous threshold of $250 per week, in place since 1975.  According to the White House, in 1975, 65 percent of salaried employees earned less than the threshold and were thus entitled to overtime regardless of their job duties.  In contrast, today only 12 percent of salaried workers fall below the current threshold.  Indeed, a number of states, including California, have set higher salary thresholds for exempt status.  California’s current threshold is $640 per week, $33,200 annually.  That threshold will rise on July 1, 2014 to $720 per week ($37,440 annually) and on January 1, 2016, to $800 per week ($41,600 annually).  It is unclear what level the administration is aiming for, but some advocacy groups have called for a $984 weekly threshold, translating to $51,168 annually.

Another potential area of regulatory change is imposing a percentage requirement on the amount of time an exempt employee must perform exempt duties.  Current federal regulations require only that exempt duties constitute an employee’s “primary duty.”  Critics point out that this has allowed many employees with marginal managerial or administrative duties to be classified as exempt and not paid overtime.  In contrast, California law requires that exempt functions must constitute more than 50% of the employee’s work time.  And before 2004, in certain circumstances the federal regulations limited non-exempt functions to 20% of work time, a requirement that is still followed in some states.  We can expect regulatory efforts to tighten up the federal standard in this area as well.

In California, depending on the changes to the minimum salary required to meet the exemptions could have a significant impact, depending on how high the DOL raises it. Other suggested changes may have little to no impact, given our state’s more stringent requirements.

Either way, the changes have the potential to dramatically expand the number of employees eligible for overtime in other areas of the country.  Any regulatory changes proposed by the DOL will be subject to a lengthy notice and comment process and it is inevitable that legal challenges will follow, as they did in 2004. If the 2004 overhaul of the white collar exemptions is any indication, this is likely to be a long and contentious process.


Category: Wage-Hour,