The Politics of Overtime

On March 13, President Obama prominently “used his pen” in a ceremony in which he announced the Administration’s intent to give more Americans the chance to earn the overtime pay that “they deserve.” What the President actually did was sign a memo addressed to the new Secretary of the Department of Labor to consider how the white collar overtime exemptions can be changed in order that more people will be eligible to earn overtime.

At present, to qualify for one of three “white collar” exemptions, an employee must be paid at least $455.00 a week on a “salaried” basis and his/her job duties must meet specific tests, which require the use of independent judgment, advanced training and knowledge, or supervisory responsibility for multiple employees. Despite the pomp and circumstance of this signing ceremony and the direction to make this change happen “right away,” there is little chance that any changes in the federal overtime laws will occur this year.

The rules regarding overtime were last addressed in 2004 during the Bush Administration when the minimum salary threshold for the white collar exemptions was raised from $155.00 a week to $455.00 a week. The previous effort to revise these exemptions generated a great deal of controversy. The Department of Labor has no right to change the rules unilaterally, but must go through the rule-making process for new federal regulations. This process requires the Department to develop a proposed new rule, make it public, give members of the public 60-90 days in which to comment, take time to consider making revisions to the proposed rules based on the public comments, submit the rule for final approval, and then a new rule will be issued. Any rule that is adopted will apply prospectively.

It is not clear at this point exactly what changes the Department of Labor may make to the proposed “white collar” exemptions. What seems certain is that the Department will push to increase the current salary threshold of $455 a week, but it may also propose making changes to the types of duties considered supervisory or require that workers devote specific percentages of their time to certain duties, all of which is likely to lead to litigation. It is noteworthy that in 2004, the Democratic legislators tried to head off proposed regulatory changes in Congress by threatening to derail funding for the Department for the next fiscal year because the Democrats were afraid this proposed rule change would cause workers to lose the eligibility for overtime. This time around the shoe will be on the other foot, and Republicans will be concerned that any proposed changes will be viewed as a “job killing” rule.

The President’s overtime pronouncement is part of the Administration’s larger economic and social agenda to raise wages paid to all employees. Earlier this year, the President announced that on all new government contracts beginning January 1, 2015, government contractors will have to pay a minimum of $10.10 per hour. The Administration is currently lobbying Congress to raise the minimum wage across the board so all employees will be paid more. While the Administration has authority to revise starting pay on federal contracts and the details of the exemptions without having to obtain Congressional approval, only Congress can approve an increase in the minimum wage. As another example of this agenda, in September 2013, the Department of Labor issued its final rules on domestic service employees who will now be entitled to earn overtime pay as of January 1, 2015. This change eliminated a long-recognized exemption from overtime for those individuals who provide in-home custody and care for infirm and disabled individuals.

It seems inevitable that the Administration will increase salary level threshold for these “white collar” exemptions at some point in 2015. What this new salary level will be, and whether the Administration tries to tie that new salary threshold to some type of periodic adjustment for inflation, is almost certain to be a battleground. By way of example, in New York and California, employers are currently required to pay a salary of at least $600 a week to qualify for state exemptions, and in New York this salary threshold will rise to $800 a week by 2016. For this reason, some have speculated the Department of Labor may try to require a salary threshold of $1000 a week or $50,000 a year before a “white collar” exemption will apply under federal wage and hour laws.

The timing of the President’s announcement now seems clearly intended to create a political issue that the parties will fight about in advance of this fall’s election. A significant rise in the salary threshold could have a significant economic impact on employers, especially those with small workforces. Employers need to take this initiative seriously. Those who are active in trade/industry associations should make sure that thoughtful responses to any proposed regulatory charges are submitted and that all concerns about the changes are raised.

For additional information on overtime issues, wage and hour laws and other compliance issues involving the Department of Labor, please contact David Paxton (540.983.9334) or any other members of Gentry Locke’s Labor and Employment Team.

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These articles are provided for general informational purposes only and are marketing publications of Gentry Locke. They do not constitute legal advice or a legal opinion on any specific facts or circumstances. You are urged to consult your own lawyer concerning your situation and specific legal questions you may have.