What Employers Should Know about the President’s Directive Regarding Overtime Pay

While President Obama kept it no secret that he intended to petition Congress to raise the federal minimum wage in advance of the mid-term election, his recent presidential memorandum directing the Department of Labor to revise regulations governing overtime came as a surprise to many.

In the memorandum directed to the Secretary of Labor, the President notes as "outdated" the current regulations which provide exemptions from the Fair Labor Standards Act’s (the “FLSA”) requirement that employees should be compensated at 1.5 times their regular pay rate for hours worked in excess of 40 hours a week. The regulations, which have not been revised since 2004, exempt certain executive, administrative and professional employees (commonly referred to as “white collar” exemptions) who earn more than $455/week and whose job duties meet certain criteria.

The President’s position is that these exemptions have failed to “keep up with our modern economy” and, therefore, tasks the Secretary of Labor to propose revisions to modernize and streamline the existing overtime regulations. Specifically, the President directs the Secretary "to consider how the regulations could be revised to update existing protections consistent with the intent of the [FLSA]; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply."

While it remains uncertain exactly what revisions will be proposed by the Secretary of Labor, a fact sheet released by the White House concurrently with the President’s memorandum suggests that the Chief Executive expects the revisions to address issues that have deteriorated over time. For example, the President’s memorandum states that “millions of Americans lack the protections of overtime and even the right to the minimum wage”—a point echoed by the information provided by the Office of the Press Secretary.

The details provided by the press release indicate that a likely revision will be to the minimum threshold for salaries in order to qualify for one of the “white collar exemptions.” The press release states that the raising of the threshold in 2004 from $250/week (originally set in 1975) to $455/week failed to keep up with inflation. Continued inflation since that time, as well as a shrinking middle class, are reasons many experts forecast that the revisions will most certainly include an increase in this figure, potentially doubling it to more than $900/week (which the administration argues would be the amount mandated in 1975 if it were indexed appropriately to keep up with inflation).

It is also anticipated that the revisions might include additional substantive changes to the exemptions themselves. For example, the press release discusses various managerial positions that may be exempted under the current rules and cites employer “difficulty” in determining exemption qualification as a basis for “modernizing” the rules “to better fit today’s economy.” Employers could interpret this as simply further explanation for the need to increase the minimum threshold or evidence that the administration is looking at more sweeping changes like eliminating the primary duties test and replacing it with a more qualitative analysis.

While the scope of any proposed revisions is hazy at the moment, what is clear is that the rule adoption process itself is shaping up to be a particularly long and arduous one. Although the administration acknowledges that the process will take months, recent history indicates that it could take more than a year to formally adopt rules related to overtime pay.