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Obama Proposing Big Changes To Overtime Exemption

In a recent Memorandum issued by President Obama, the Secretary of Labor has been directed to change the rules for paying overtime. In a written statement, the White House advised that overtime protections have “eroded” and numerous workers are being unfairly excluded from receiving overtime pay. According to the White House, “a convenience store manager or a fast food shift manager 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.”

In an effort to make millions of workers eligible for overtime, the President is proposing to increase the salary threshold to qualify as an exempt employee under the Fair Labor Standards Act (FLSA). Currently, in order to qualify for the executive, administrative, learned professional, or creative professional exemptions, the employee must be paid at least $455 per week on either a salary basis or a fee basis (i.e., an annual salary of $23,660). The last time this amount was updated was 2004.

The President’s Memorandum does not specify what the new salary threshold should be. However, the White House did point out that the current threshold of $455 per week is equivalent to $561 in today’s dollars or $29,172 on an annual basis. The White House also noted that higher salary thresholds have already been established in New York and California (currently $600 and $640 per week respectively, with scheduled increases in future years). It is estimated that increasing the salary minimum to even $561 per week will impact over 3 million workers who are classified as exempt.

If changes are adopted by the Department of Labor, it will not happen overnight. The Department will need to issue notice of the proposed regulations and allow for a comment period. If new regulations are adopted, employers will need to provide pay increases to their employees or begin paying overtime. The other option may be to convert salaried employees to hourly workers and restrict their hours to 40 or less. We will keep you posted.