By Nathanel Charny
President Obama made headlines last week when he announced his intention to use the White House’s rule-making authority to make changes to the federal law on overtime pay. Whether you are an owner, manager or employee of a big or small company, these changes may be significant.
Here is what that all means.
The federal Fair Labor Standards Act (FLSA) was passed by Congress and signed into law by President Roosevelt in 1938 as part of the New Deal. The law covers nearly all workers in the United States and requires not only a minimum wage but also that employees be paid time-and-a-half for all hours worked in excess of 40 in a given work week.
Under the FLSA, all workers paid on an hourly basis must be paid overtime (with certain exceptions — from the general, like agricultural workers, to the specific, like movie-theater ticket takers). While there is a wide misconception that “salaried” workers are exempt from the FLSA’s overtime pay requirements, this is not true. Those who are salaried, commissioned, or receive any other form of compensation as employees must also receive overtime pay — unless they fall within certain exempt categories (hence, the term an “exempt employee”).
To put it another way, just because an employee is on a salary does not mean that employee is exempt from the overtime pay obligation. Two other criteria must be met for the employee to be exempt:
(1) The salary the employee makes must be at least $455 per week (or an annual salary in excess of $23,600); and
(2) The salaried employee’s job duties must fall within certain categories, including most commonly, executive, administrative and professional.
Hence, under the current rules, salaried or not, if an employee earns less than $455 per week, that employee is entitled to overtime pay.
The main thrust of President Obama’s announcement is his intention to raise the salary threshold to a higher dollar amount, which would, in turn, mean that more salaried workers would be non-exempt no matter what their job duties. As explained by the President, the current threshold of $455 per week is not up-to-date with inflation, has only been adjusted twice in the last 40 years and, most notably, is below the poverty rate for a family of four.
While Obama has yet to announce how high he intends to raise the salary threshold, if it were raised to meet inflation, the new threshold would be $980 per week. If this becomes law, those on a salary of $52,000 or less will be entitled to overtime pay without regard to their job duties; a change that would impact at least 10 million workers.
So what happens next? It will take a few months for the White House to research and reveal the specifics to their proposed rule changes, which will be followed by a mandatory period of months for public comment before being put into place. Given the structure of the FLSA, the President need not seek Congressional approval — the rule-making process is sufficient.
In these respects, the feds are playing catch-up to New York State, which recently updated its salary threshold for overtime exemption to $600 per week ($31,200 annual salary) with set increases to $656.26 per week ($34,125.52 annually) on Dec. 31, 2014, and $675 per week ($35,100 annually) on Dec. 31, 2015.