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PRESIDENT SEEKS TO CHANGE OVERTIME RULES BY EXECUTIVE ORDER

There is always something changing in employment law, which creates fodder for this weekly blog. However, today’s potential change is absolutely critical.

President Obama announced that he will order the US Department of Labor to issue new regulations regarding overtime pay.  To recap a classic employment law subject, workers are either exempt or non-exempt. Non-exempt workers are paid on an hourly basis.  However, executive, professional and administrative workers who fit within what have traditionally been called the white-collar exemptions are paid weekly salaries and are not paid for hours worked in excess of 40 hours per week.  Since 2004, the minimum weekly pay required to qualify a worker for exempt status has been $455 per week.

We have seen the administration use executive powers to order the Department of Labor to tighten the administrative exemption—basically eviscerating it.  But now, the president wants to raise the salary minimum to a higher number rumored to be $1000 per week.   He cites stagnating wages and doubling of corporate profits over the past five years.  However, truly, our mutual clients are not oligarchs and many employers are hanging on marginally.

Any increase in the weekly salary minimum will require employers to either give salaried employees receiving less that the mandated amount raises to bring them up to the new minimum salary OR to pay overtime to salaried employees who work more than 40 hours but do not meet the minimum earnings requirements.

Reminder for New York readers:  the salary threshold in New York to qualify for the executive and administrative exemptions was recently increased to $600 per week on December 31, 2013 (previously it was $543.75) and is scheduled to increase annually on December 31, 2014 to $656.25 and on December 31, 2015 to $675.00 per week.

The only good news is that any such change cannot take effect immediately. A period of public comment is required before the Department of Labor can finalize any changes.

This is one of the most troubling items, with broad ranging consequences for employers that I have seen recently because it will cut across the board.  All of you who have workers who have been classified as salaried and have been reluctant to reclassify them as hourly must critically re-evaluate your business practices.  Misclassification is rampant and will expose you to the risk of a wage/hour suit under the Fair Labor Standards Act for unpaid overtime.  Additionally, I can’t imagine a scenario in which this is not going to cost employers big time!  Finally, there is a cachet associated with being a salaried employee and benefits attached to exempt status that may go out the window, adversely affecting valued employees.

I will keep my readership appraised of any changes as they develop.  I recommend that you write to the White House, your senators and congressmen to express concern at the financial consequences for your businesses.  This will not happen tomorrow but you must begin to plan for it today.  I encourage you to put anything whatsoever which could be beneficial to employees but cost you money (pay raises, benefit programs, etc.) on hold until we know precisely what we are in for going forward.