Impacts of the Proposed Overtime Regulation on Vulnerable Employers

Currently under the Fair Labor Standards Act (FLSA), an employee must meet three criteria to qualify as an executive, administrative, or professional employee exempt (the “white collar” exemptions) from federal overtime pay requirements (time and a half for hours worked over 40 per week): they must be paid on a salary basis (the salary basis test); that salary must be more than $455/week ($23,660 annually) (the minimum salary requirement or salary threshold); and their “primary duties” must be consistent with executive, professional or administrative positions as defined by the U.S. Department of Labor (DOL) (the primary duties test). To ensure employees are paid for all hours worked and at the proper rate for overtime, employers must carefully track the hours nonexempt employees work.

On July 6, 2015 DOL proposed changes to the regulations that determine whether a white collar employee will be classified as exempt from being paid overtime. The most significant one is increasing the salary threshold by 113% to $970 per week (or $50,440 per year).  This proposed salary threshold is higher than minimums set underany state laws—nearly $10,000 higher than that of California and nearly $15,000 higher than that of New York, two of the states with the highest costs of living and the highest salary thresholds.

DOL also proposes automatic annual increases to the salary threshold, giving employers only 60 days before the new threshold becomes effective each year. This would be an unprecedented change ensuring that future “automatic” updates would go into effect during difficult economic times, potentially exacerbating future problems in the economy.

Finally, DOL has asked for public input on the current primary duties test, although it stopped short of proposing any changes. The agency asked several questions about adding a requirement that an employee would have to be performing their duties for a specific amount of time to be exempt (California requires employees to perform their primary duties “more than 50% of the time.”)  Any such substantial changes that would be included in the final rule would be dropped in without any opportunity to review or comment on them.

On February 1, the U.S. Chamber is holding a symposium to highlight the impact the proposed overtime regulations will have on the most vulnerable employers—small businesses, nonprofits, academic institutions, and state and local governments. The event will feature presentations and panels from a variety of those who are struggling to figure out how they will be able to absorb the increased labor costs the new overtime regulation will create.  

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