How federal overtime changes could affect N.H. employers

Presidential directive seeks to revamp regulations for ‘white-collar’ exemptions

In an unexpected move, President Obama in March delivered a presidential memorandum to the labor secretary instructing the Department of Labor to revise and update federal Fair Labor Standards Act regulations.

The president’s directive asks the department to revamp the regulations in a manner that will make it more difficult for employers to avoid paying overtime to workers now classified under the so-called “white-collar” exemptions.

The FLSA generally requires that workers be paid time and a half for all hours worked in excess of 40 each week. However, the FLSA exempts from this requirement those workers who are classified as bona fide executive, administrative or professional employees. Employers do not need to pay these “white-collar” workers overtime provided the employees are paid at least $455 per week on a salary basis and the employees’ job duties meet specific tests.

Generally speaking, to meet these tests, employees’ primary duties must include managing a part of the business and supervising other employees, exercising discretion and independent judgment on significant matters or require advanced knowledge.

President Obama’s directive instructs the Labor Department to “update” the FLSA regulations in a manner that will “simplify” the overtime rules and “strengthen the overtime protections” for “millions” of workers that are currently not eligible for overtime pay.

In an accompanying fact sheet, “Opportunity for All: Rewarding Hard Work by Strengthening Overtime Protections,” the administration makes clear that it believes that the salary threshold of $455 per week (which translates to $23,660 a year) is far too low and that a higher threshold is warranted.

Although the fact sheet does not specify an amount, it does reference the higher salary thresholds now in effect in New York ($600 per week) and California ($640 per week). Rumors circulating in the employment law community suggest that the administration may be interested in seeing a salary threshold of $600 to $970 per week.

There are further rumors suggesting that the administration seeks to tighten up the exemptions, perhaps by requiring employees to perform "a minimum percentage" of white-collar work to qualify for an exemption.

What it all means

It could take a year or more for the department to revise the regulations, submit them for public comment, make any necessary revisions and finally adopt any changes to the FLSA regulations.

Development of the regulations will be something to watch closely, as the stakes are high. The White House has not been shy about its goal of increasing workers’ wages, and numerous experts agree that the narrowing of the white-collar exemptions could be quite costly to employers.

It is not clear at this time whether the department will revise the regulations to raise the income threshold or to tighten the exempt duties requirements, or both. All that is clear at this point is that the administration has given the department a very strong push to tighten up the overtime exemptions.

Assuming the exemptions are tightened, employers will be forced either to pay overtime to more individuals or to increase workers’ salaries to meet the new salary basis threshold. Under either scenario, employers’ costs will rise.

For those companies who wish to be heard on the proposed regulations, it would be a good idea to stay in close contact with trade organizations, as they may be interested in submitting comments to the proposed regulations when they are made available.

This is also a great time to take a close look at who your company has classified as exempt, and why. Employers should carefully analyze who is paid on an exempt basis and what each worker does for the company.

In doing so, it is important to remember to look not only at the employee’s job description, but also at what the employee actually does for the company on a daily basis and how frequently an employee performs exempt activities. This information will be helpful in determining whether employees are classified appropriately.

This baseline information will also come in handy when the proposed regulations come out, as it will enable employers to quickly identify which employees will move from the exempt category to the non-exempt category, thereby helping employers discern the true cost of the proposed regulations.

Peter Felmly, a labor and employment attorney with the firm of Drummond Woodsum, can be reached at 207-772-1941 or pfelmly@dwmlaw.com.