Something Significant This Way Comes: Potentially Big Changes to Overtime Exemptions Loom

By Jonathan K. Driggs, Attorney at Law

 

Question: What 2015 regulatory development could have a major financial impact on employers?

 

Answer: The US Department of Labor’s release of a proposed rule revising the white-collar overtime exemptions under the Fair Labor Standards Act.

 

Heads up people, this is big—at least potentially.  Here’s the scoop: in March of 2014, President Obama issued an Executive Order directing the US Department of Labor (DOL) to “modernize and streamline” the regulations that layout the finer points of the white-collar overtime exemptions under the Fair Labor Standards Act (FLSA).  In this context, “modernize and streamline” is just a more politically digestible way for the President to say, “hey DOL, I want to make a whole lot more people eligible for overtime!”

 

The white-collar exemptions are the FLSA overtime exemptions most commonly used by employers.  They consist of the following categories: executive, administrative, professional (including computer professionals) and outside sales.  While the FLSA is a law passed by Congress, the law gives the DOL the power to pass regulations (i.e., “rules”) that interpret many of the finer points of the FLSA.  As a result, the DOL has significant power over what the FLSA ultimately requires.

 

The DOL is expected to release its Proposed Rule any day now (most likely sometime in Q1 of 2015).  There will then be a period allowing for public comment, followed by the release of the new Final Rule.  In order to minimize political complexities, the DOL is expected to proceed quickly through the rule-making process and get them in place as far before the November 2016 presidential elections as possible.

 

What changes might we expect to be made to the white collar exemptions?  While we will not know for sure until the Proposed Rule is issued, many experts predict something along the following lines:

 

  • The minimum weekly salary amount for the white-collar exemptions may be increased.  The minimum currently sits at $455 a week ($23,660 a year).  A recent study funded by the DOL recommended that the weekly minimum be set at $970 per week ($50,440 a year).  While it is hard to say exactly what the new minimum will be, based upon the DOL’s posture on other issues as of late, I expect them to be aggressive.  As a result, many employees who currently qualify as exempt would have to be treated as non-exempt (or have their salaries raised).

 

  • The executive exemption may be narrowed.  Based upon the President’s comments, it is clear that he wants to drastically reduce the use of the executive exemption for lower level managers.  In particular, lower level management positions in retail and food establishments will be a target of the rule revision.  Options include: eliminating the ability of exempt employees to have concurrent non-exempt duties and still be deemed exempt (e.g., their responsibilities must focus on doing exempt-level work as opposed to being allowed to do some non-exempt work); imposing a quantitative test (e.g., at least 50% of all work must be exempt-level work); and, narrowing the definition of “department or subdivision thereof” (to be exempt, employees must be responsible for a recognized department of the business—the DOL may tighten up how this is defined).

 

  • The computer professional exemption may be narrowed.  This may be a bit more challenging for the DOL since this exemption is spelled out more precisely in the language of the FLSA (and thus, the DOL must respect the language of the statute), but it is clear that the DOL views the expanded use of this exemption by employers to be problematic and they would like to reign it in.

 

I am extremely curious to see what the DOL proposes with their new rule.  There is no question that the DOL feels emboldened as of late.  With the economy doing well—while wage levels remain stagnant and the wage gap between that haves and have nots continues to widen—it may just be the perfect opportunity for the DOL to roll out some major changes (and get away with it politically).

 

To be fair, there may be some legitimate policy arguments for narrowing the application of certain exemptions.  However, our workplaces have changed dramatically since the FLSA was passed in 1938 and there are now new, professional-level jobs that deserve (and need) to be treated as exempt, but cannot be under the current law and regulations.  It’s funny how the “modernize and streamline” argument seems to work only one way.

 

 

 

This article should not be construed as legal advice.  Copyright ©2014 by Jonathan K. Driggs, Attorney at Law, P.C.  All rights reserved.  Jonathan K. Driggs is an employment law attorney with over 20 years of experience, including 3 years with the Utah Labor Commission.  www.jkdlawpc.com

 

Jonathan’s popular “Employment Law for Managers Seminar” is being offered by two “Custom Fit Programs” at significantly discounted rates for “for-profit” employers (“Custom Fit Programs” are run by the state of Utah and use state funds to offset the cost of training programs for employers):

 

For employers in Utah County: Thursday, January 29, 2015, at the Mountainland Applied Technology College’s Thanksgiving Point campus.  For details and registration contact: Roger Rice at 801-753-4153.

 

For employers in Salt Lake County: Wednesday, March 11, 2015, at the SLCC Miller Campus in Sandy.  For details and registration contact: Debbie Patten at 801-957-5244.

 

For general information about the contents of Jonathan’s Employment Law for Managers Seminar, see: http://www.jkdlawpc.com/seminars/employment-law-for-managers-seminar/

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