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Mar 14, 2014Client Alert

Big Changes Coming to Federal Overtime Regulations

On March 13, 2014, President Obama issued a memorandum directing the U.S. Department of Labor (the Department) to revise the regulations that define the executive, administrative, and professional exemptions from federal overtime requirements. Although the memorandum does not detail how the Department should revise those regulations, we anticipate that major changes in how the Department defines those three widely-used exemptions are coming.

 

The Fair Labor Standards Act of 1938 (FLSA) is the federal law that establishes minimum wage, overtime, child labor, and recordkeeping requirements that apply to most private employers. However, the minimum wage and overtime requirements do not apply to those individuals employed in a “bona fide executive, administrative, or professional capacity[.]”

 

The FLSA grants the Secretary of Labor (the Secretary) the authority to define the executive, administrative, and professional exemptions, and President Obama’s memorandum directs the Secretary to exercise that authority. Specifically, the President directed the Secretary to “consider how the regulations could be revised to update existing protections consistent with the intent of the [FLSA]; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply.”

 

At this point, it is unclear exactly what the proposed revisions to the FLSA’s overtime rules will be. The President’s memorandum does not detail what revisions the Secretary should propose. Furthermore, the Secretary will likely take months to issue proposed regulations, and there will be a period for “comments” by businesses and other interested parties. The timeline for implementing final regulations could easily be more than a year.

 

Before the President issued his memorandum, the New York Times previewed the possible changes that the Obama Administration will make. First, the Administration may be aiming to raise the amount of salary required for the executive, administrative, and professional exemptions. (The salary requirement is currently $455 per week, which is $23,660 when annualized.) Second, the Administration may want to extend overtime rules to “fast food managers, loan officers, computer technicians and others” who are currently exempt. Third, the Administration may alter the flexible “primary duty” test so that exempt employees must perform a certain minimum percentage of exempt work to qualify for the executive, administrative, and professional exemptions.

 

We will provide updates as more information regarding the new overtime regulations becomes available over the coming months.
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