Sep 03, 2015

The Department of Labor proposes significant change to overtime rules

The U.S. Department of Labor (DOL) recently published a proposed rule to revise the regulations issued under the Fair Labor Standards Act (FLSA) that would change the way employers implement the exemption from minimum wage and overtime pay for executive, administrative, professional and other exempt employees.

The FLSA, first enacted in 1938, established a national minimum wage and set the overtime-pay rate at one and one-half times an employee’s regular rate for any hours over 40 hours in a workweek. Generally, to be exempt from the FLSA’s overtime requirement an employee must: (a) be paid at least $23,600 per year ($455 per week); (b) be paid on a salary basis; and also (c) perform exempt-job duties as a bona fide executive, professional or administrative employee.

With the DOL’s proposed new rule, the DOL seeks to update the salary level and more than double the current salary threshold for overtime pay eligibility to $50,440 for a full-year worker (or $970 per week). The proposed rule would be applicable to nearly any businesses, including small businesses, which have annual gross sales of $500,000 or more. The proposed rule, if adopted, would take effect in 2016.

According to the Obama administration, the proposed changes would affect an estimated five million workers across the United States, and the new overtime regulations could cover up to 40 percent of the country’s full-time salaried workforce. A salaried employee who earns under $50,400 per year will not be exempt from overtime even if they are paid a salary and otherwise meet the job duties of an exempt position. As a result, if the overtime pay rule is enacted, there could be significant financial and administrative impacts on all businesses.  

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such. 

Client alert authored by: Ryan A. Haas