Obama Proposes Shrinking White-Collar Exemptions under FLSA

President Obama has proposed expanding the availability of overtime pay, which would cause  the Department of Labor to do its first overhaul of Fair Labor Standards Act (FLSA) regulations in 10 years.

 

The President signed a memorandum on March 13, 2014, instructing the Department of Labor to update regulations about who qualifies for overtime pay. In particular, he wants to raise the threshold level for the salary-basis test from the current $455 per week in order to account for inflation. The threshold has been raised just twice in the past 40 years. The President did not specify the exact amount the threshold should be raised though.

 

“Unfortunately, today, millions of Americans aren’t getting the extra pay they deserve. That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year,” Obama said in his remarks on overtime pay.

 

The memorandum also suggests that both the primary duties and pay of some exempted employees do not truly fit in the executive, administrative and professional employees exemptions, referred to as the white-collar exemptions under FLSA.

 

In a fact sheet on the President’s memorandum, the White House said: “Millions of salaried workers have been left without the protections of overtime or sometimes even the minimum wage. For example, a convenience store manager or a fast food shift supervisor or an office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay.” The FLSA’s minimum wage would not protect a salaried worker because salaried workers’ pay must satisfy the weekly salary-basis test rather than the Federal hourly minimum wage, which is $7.25 per hour. The hourly minimum wage in Florida is currently $7.93 per hour.

 

The memo also pointed out that “only 12% of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections.“ The fact sheet also called the current FLSA regulations outdated, noting that states such as New York and California have set higher salary thresholds.

 

Small businesses will be hit particularly hard by a change in the FLSA regulations.

 

If the regulations shrink the current white-collar exemptions, employers would have two main options to hold down costs. They would have to either increase workers’ salary above the new salary-basis threshold (to avoid paying overtime) or leave employees in the nonexempt category and pay them overtime. Companies could also hire more employees, but the other two options are more likely. 

 

Implications for HR

Once tightened white-collar exemptions are implemented, which is not likely to happen for months now, it could result in far-reaching implications for HR, including wage and hour audits and layoffs. The money to pay for increased overtime wages has got to come from somewhere which might mean layoffs, reducing overtime and taking a fresh look at the fluctuating workweek.

 

When asked at a press briefing about the burden on businesses if the Obama administration succeeds in efforts to both increase the federal minimum wage and revise FLSA regulations, Betsey Stevenson, a member of the White House’s Council of Economic Advisers, said, “We think these two items are very different, but, obviously, they do feed into the same thing, which is people should be rewarded for fair work.” She suggested that some workers in the white-collar exemptions aren’t even earning minimum wage for all the work they do at low salaries.

 

Even though the president did not assign a number for the minimum salary-basis threshold, Stevenson said the overtime “protections have been eroded over time. This threshold in 1975 was nearly $1,000 in today’s dollars; today it’s $455.” Stevenson believes that the rule should be modernized as a matter of the “basic principle of fairness.”

 

We will continue to keep you abreast of any changes to FLSA as well as other regulations that can impact your business. If you have any questions about the current or proposed FLSA regulations, please contact our office.