Perhaps one of the biggest and most unexpected pieces of news for employers came on March 13, 2014 when President Obama signed a memorandum instructing the USDOL to undertake its first overhaul of the FLSA since 2004. The agency is charged with the responsibility to update the regulations of who qualifies for overtime pay. The FLSA requires employers to pay employees at least minimum wage for each hour worked and at a rate of time and a half the regular rate of pay for each hour over 40 unless the employee qualifies as exempt.
Exemption is determined based on whether an employee meets the criteria set out in certain “white collar exemptions” which take into account both the salary and the duties of the individual. The memorandum focuses first on increasing the salary threshold of $455 per week for the salary-basis test to account for inflation. It then suggests that the executive, administrative and professional exemptions should be reviewed to determine whether the second aspect of the test for exemption, the primary duties test, should be revised.
The thinking is that the so-called “white collar” exemptions which were originally meant for highly compensated employees with the power to negotiate favorable salaries and benefits for themselves should not apply to workers earning as little as $23,660.00 per year. This review is likely to have significant implications for businesses, especially small businesses, and employees; and it will be completed without legislative action. The expectation is that large numbers of currently exempt employees, particularly retail and restaurant managers, will be reclassified.
The Society for Human Resource Management (“SHRM”) on April 30, 2014 sent out a call to its members asking for volunteers to speak on the impact to business when the rulemaking process begins. The rulemaking is likely to begin in the fall with the expectation of completion within one year.
Businesses should keep a watchful eye on this process as it unfolds since the impact of the changes is likely to be significant.