Proposed Changes To The FLSA Will Entitle Many More Workers To Overtime Pay


Proposed Changes To The FLSA Will Entitle Many More Workers To Overtime Pay

Jul 6, 2015

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When he felt the Country was ready and the need was great, President Roosevelt asked Secretary of Labor Perkins, “What happened to that nice unconstitutional bill you had tucked away?” Franklin D. Roosevelt, Public Papers and Addresses, Vol. V, New York, Random House, 1936, pp. 624-25. On Saturday, June 25, 1938, 9 days after Congress had adjourned, President Roosevelt signed the Fair Labor Standards Act of 1938 (“FLSA”).  Since then, the FLSA has set minimum wages and mandated overtime pay for all hours worked over 40 in a week, equal pay for women, child labor standards, and recordkeeping requirements for employers.

President Obama apparently felt that conditions were, once again, ripe for an expansion of federal protection of employees’ wages. He directed the United States Department of Labor (“DOL”) to update the FLSA’s overtime pay protections to “restore” its intended purpose of guaranteeing overtime to employees when they work more than 40 hours in a week. On June 30, 2015, the DOL released proposed regulations to expand the FLSA’s overtime provisions to an additional 5 million workers. 

Under current FLSA regulations, employees covered by the FLSA earn at least one and one-half times their regular rate of pay for all hours they work beyond 40 in a workweek. Many workers, however, are “exempt” and NOT covered by the FLSA. Employees do not earn overtime if they earn at least $455.00 per week (the “salary test”), which is equivalent to $23,660 annually, and perform primarily executive, administrative, or professional duties (the “duties test”), as defined in the FLSA regulations. The low salary threshold ($455/week) for the exemption means that large numbers of employees do not earn time and one half for the hours they work in a week that exceed 40.In addition, highly compensated employees who earn more than $100,000 annually are subject to a looser duties test (“HCE test”) that limits eligibility for overtime.

The DOL’s proposed changes target these exempt employees. The proposed regulations peg the salary test at the 40th percentile of weekly earnings for full-time salaried workers. Using 2013 data, employees who earn less than $921 per week will be eligible to earn overtime, regardless of their duties (and whether those duties fit into the professional, administrative or executive exemptions). The new salary cut off equates to an annual salary of $47,892. Unlike the existing salary test, the update will change annually based on the salary level at the 40th percentile of weekly wages. The DOL also proposes to peg the HCE compensation level equal to the 90th percentile of wages for full-time salaried workers ($122,148 annually), and this will also automatically update on an annual basis. The proposed rule will entitle approximately 11 million workers who earn less than the new salary threshold ($921/week) to overtime pay, regardless of their job duties (and whether they fall into one of the FLSA exemptions). 

The proposed rule will be published in the Federal Register with a 60-day comment period, and may change before becoming final. The rule will increase the costs of salary and wages for employers. In 1936, the evening before he signed the FLSA into law, President Roosevelt disregarded such concerns: “Do not let any calamity-howling executive . . . tell you . . . that a wage of $11 a week is going to have a disastrous effect on all American industry.” Robbins Schwartz will continue to follow the proposed regulations and provide updates as they move through the rule-making process. 

Rachel E. Lutner, a partner in the firm’s Chicago office, prepared this Law Alert.