President Obama announced this week that he is directing the Secretary of Labor to “modernize and streamline” existing overtime regulations under the Fair Labor Standards Act. He characterized the current regulations as “outdated,” and instructed the Secretary to “consider how the regulations could be revised to update existing protections consistent with the intent of the Act; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply.”
The President’s instructions – as well as the “fact sheet” published by the White House and the Secretary’s blog post in response to the President’s directive – are short on specifics, but it’s pretty clear what direction the proposed reforms will take.
First, there will be a proposal to raise the salary threshold below which even salaried employees must be paid overtime if they work over 40 hours in a workweek. The current federal threshold of $455 per week generates an annual income of $23,660, which, as the White House pointed out, is below the poverty guideline of $23,850 for a family of four.
How much and how fast will the Administration propose to raise the threshold? It’s anybody’s guess, but it may be worth noting that in California, the threshold is set to increase $800 per week in 2016. And consider this: the federal threshold was set for $250 per week in 1975. In 2014 dollars, that would be $1,087. Expect a proposal to raise the threshold over the next few years to at least $1,000 per week, and perhaps index it to inflation. It’s estimated that an increase to $1,000 could entitle 5 million currently exempt workers to overtime pay.
Second, there will be proposals to toughen and clarify the “duties” portions of the white collar (executive, administrative, and professional) exemptions. The President remarked on employees who “stock shelves” and are treated as exempt. The Secretary pointed to gas station “managers” who work long hours at the cash register at an effective rate below the minimum wage, but are classified as executives. Look for proposed rules requiring exempt employees to spend most of their time on exempt duties, to supervise larger numbers of other employees, or to have hiring and firing authority.
We’re only at the beginning of a long rulemaking process that’s sure to be controversial and could well become an issue in upcoming elections. If the President gets even part of what he wants from this process, some employees will earn more money, while employers will face higher labor costs and will implement cost-control strategies that may cost jobs or restrict overtime availability for workers. Whether the benefits will outweigh the costs remains to be seen and will certainly be subject to debate.