In another attempt to stimulate the earning power of middle class Americans, President Obama recently took a bold move and issued a memo to his Secretary of Labor, telling him to tighten the regulations creating exemptions so that more workers will be eligible for overtime premium pay. Under the federal Fair Labor Standards Act, all covered workers are presumed eligible for overtime premium pay whenever they work more than 40 hours in any one work week, unless the employer proves they fit into one of several specific exemptions. In his March 13, 2014 Memorandum, the President declared that the regulations, which define the so called “White Collar” exemptions from overtime pay, “have not kept up with our modern economy” and that “because the Regulations are outdated, millions of Americans lack the protections of overtime.”
At the same time the President issued his Memo, the White House released a Fact Sheet which claims that the required minimum salary for the White Collar exemptions, currently $455 per week, puts employees below the poverty level.
What Is the President’s Beef?
As the country has evolved from a manufacturing to a services economy, a much greater percentage of the workforce has been classified as exempt from overtime. The White Collar exemptions consist of the Administrative, Professional and Executive exemptions. To qualify for these exemptions, the employee must satisfy a variety of criteria as to their job duties and earn more than $455 per week. By way of example, the manager of a fast food outlet, convenience store or gas station, who makes $455 a week or more, will oftentimes qualify under the Executive exemption. Typically those jobs require many hours of overtime, which under the current rules do not qualify for overtime premium pay. Elimination of the exemption for these types of workers would either increase their earnings significantly because they would have to receive overtime premium pay for the hours over 40 worked each week or cause their employers to rethink staffing strategies so as to limit the amount of overtime worked each week. In either instance, businesses would see increased manpower costs while the President seeks to increase workers’ earning power. The President’s Memo also asks the Secretary of Labor to simplify the regulations to make them more easily understood by employers and workers. Businesses could rally behind this request: many employers know how complex, arcane and counter-intuitive the FLSA and its implanting regulations can be.
In the short term, the President’s Memo changes nothing other than to draw political attention to the issue, and it has no legal effect. In order for any federal agency like the Department of Labor to revise its regulations it must strictly adhere to the requirements of the Administrative Procedures Act. That will require, among other things, the Department of Labor to draft proposed regulations, publish them in the Federal Register for comment by all those affected, review and analyze the comments and then publish final regulations. If the Department of Labor’s recent experience in issuing new regulations for the payment of home health aides is an indication, the process will take many months and likely a couple of years before any employer is impacted.