Last week, President Obama directed the Department of Labor to update the regulations that define which workers are entitled to minimum wage and overtime protection under the Fair Labor Standards Act (FLSA). His directives to raise the salary threshold and to revamp the “primary duty” test within the FLSA will likely have a significant impact on the business models that have been in place for most employers for decades.
The FLSA provides both the national minimum wage for most workers and sets forth that certain workers must be paid overtime for hours worked in excess of 40 within a work week. But there is an exemption within the FLSA, the so-called “white collar” exemption, where employees who meet the criteria to be executive, administrative or professional workers are not entitled to a minimum wage or overtime pay. For the white-collar exemption to apply, however, employees must meet certain job duty criteria, including the exercise of independent judgment, and make a salary of no less than $455 per week.
The theory behind the white collar exemption is that higher salaried workers with higher-status job duties do not need the same wage protections as lower-wage workers performing lower-status tasks. However, the white collar exemption has been criticized for being misused by some employers seeking to avoid paying overtime or higher wages to certain classes of employees. For example, under the current FLSA regulations, a fast-food restaurant manager making a salary of $455 per week and performing many of the same job duties as the employees he or she supervises, such as making and serving food, is not entitled to overtime pay if the manager’s primary duty is considered to be “managing” the restaurant.
President Obamas has instructed the Department of Labor to make two changes to the FLSA regulations to address the perceived white collar exemption abuse and to increase wage and overtime payments to more workers:
- Increase the salary threshold requirement. By raising the $455 per week threshold requirement, it opens up overtime pay possibilities to many more employees. Of note, California and New York have already increased the minimum salary requirement for their states – California’s threshold is $640 per week and New York’s threshold is $600. These amounts are also set to rise to $800 and $675 per week respectively, in 2016.
- Change the “primary duty” test. Under the current federal regulations, an employee is exempt from overtime pay even if the employee spends most of the workday performing non-exempt duties. We anticipate this regulation will be revised to provide a minimum percentage of time a worker must perform exempt duties to be exempt from minimum wage and overtime pay.
The likely revisions within President Obama’s directives to the Department of Labor are already drawing both praise and ire. Those in favor of the changes believe they will lead to a boost in the economy by providing more spending money for workers and better employee morale in the workplace. Additionally, it is viewed as an opportunity to provide a bright-line rule to apply to a currently murky test for who is and who is not exempt. On the other hand, some find the suggested changes to be anti-business and are afraid that requiring employers to pay more to workers will cut into profits and cause layoffs. Another perceived problem is the possibility of an increase in lawsuits as employees and employers seek guidance from the court system on how to construe the new regulations.
It will take some time before any specific revisions are made to the regulations. In the meantime, the attorneys at KingSpry will continue to monitor the regulation changes and are always available to counsel both employers and employees on how the current regulations and any potential revisions impact wages, labor hours, and responsibilities in the workplace.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
