by Adam P. Boyd

The Fair Labor Standards Act (FLSA) establishes basic rights and wage protections, including overtime pay requirements, for American workers. The majority of workers covered by the Act must be paid 1 1/2 times their regular pay rate for all hours worked in excess of 40 per workweek.

On March 13, President Barack Obama signed an Executive Order directing Secretary of Labor Thomas E. Perez to reform regulations to expand the class of employees who are entitled to overtime, meaning private businesses will ultimately have to pay more overtime to employees.

Current overtime regulations

Currently, up to 88% of salaried workers are exempt from overtime because they (1) earn more than $455 per week (approximately $24,000 per year), (2) are considered “executive, administrative, or professional,” and (3) are part of “management,” meaning they direct the work of other employees, manage a business, and have the authority to hire and fire. This so-called white-collar exemption allows businesses to deny overtime to any employee who meets the pay threshold and spends any time supervising other workers.

The overtime regulations were last adjusted in April 2004, when President George W. Bush raised the salary cap for exempt status from $155 per week to $455 per week. Obama administration officials argue that the cap has not kept up with inflation because 88% of salaried workers are believed to be exempt from overtime, up from 82% in 2004 and 35% in 1975.

What will change?

The president’s Executive Order does not prescribe a new salary threshold. However, it instructs Perez to devise a plan that will expand the number of workers who are eligible for overtime pay.

The new regulations are expected to increase the weekly pay threshold for exempt employees, thus making more workers eligible for overtime. It is believed the threshold will be raised to at least $955 per week (roughly $50,000 per year).

How will this affect your organization?

It took the Bush administration two years to implement the changes it ordered in 2004, and a U.S. Department of Labor (DOL) official believes Obama’s team will develop rules in 12 to 18 months. The official said the administration wants the rules wrapped up long before the 2016 presidential election so they will be “well embedded” by the time a new president takes office.

Although the new regulations likely won’t take effect until 2015, you should be aware of the prospective changes for budgeting and business-planning purposes. If some of your salaried employees have been exempt from overtime in the past, you should pay attention to which classes of workers may lose their exempt status, especially if you are a small business.

Adam P. Boyd is an associate in the Boise office of Greener Burke Shoemaker Oberrecht, P.A. He may be contacted at aboyd@greenerlaw.com.