An Update for Overtime Regulations

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On March 13, 2014, President Barack Obama issued a memorandum to the Secretary of Labor, Tom Perez, directing him to research and “propose revisions to modernize and streamline the existing overtime regulations.”  Despite the news coverage of this memo, it was neither an executive order nor some other new law or regulation.  Rather, it is the beginning of a conversation about the modern workplace and a directive to update regulations that have not been revised in a decade. The White House initiative focuses on a few key points regarding the so-called “white collar” or management exemptions.

First, the current minimum salary for an exempt employee is $455 per week—or just $23,660 per year.  The minimum has not changed since 2004.  The original minimum salary was first set in 1975 at $250 per week.  Had that amount kept up with inflation, it would be roughly $1,000 per week now.

Under the current regulations, managers, executives, and others are exempted from overtime compensation.  According to the Department of Labor, this means that in some workplaces, such as gas stations and fast food restaurants, “all too often, these salaried employees are earning less per hour than the employees they supervise.”

President Obama has directed the Department of Labor to establish a new standard under the Fair Labor Standards Act that removes this exemption for certain classes of employees in order to increase their pay and increase the competitiveness of the workforce.  Not everyone agrees the changes would achieve the desired results. The CEO of the company that owns Hardee’s and Carl’s Jr. published an article in the Wall Street Journal offering a management side argument that “rewarding time spent, rather than time well spent,” will not better the economy.

But, the reality is that for managers in some of the targeted industries, their hourly wage is often less than that of the employees they supervise due to the number of hours they work. The proposal will not overhaul the entire system, but is meant to identify those positions that are currently underpaid and redefine the exception. As Secretary Perez said in a statement, this proposed change “will give millions more people a fair shot at getting ahead, a better chance of realizing their dreams.”  White House Council of Economic Advisers member Betsey Stevenson recently said, “The president believes that if you’re making $25,000 a year and you’re working 60 hours a week, you should be getting paid for the extra hours you work.”

The proposal has also been called a “job-creation program”—with some labor economists predicting that employers will cut the hours of some employees to avoid paying higher overtime wages and will instead hire new employees.

 

About Jonathan Cohn

Jonathan Cohn (Jon) focuses on employee benefits, labor, employment and class action cases. Jon also litigates individual employment discrimination actions in both federal and state court, advises executives and professionals concerning their employment and non-competition agreements, and negotiates severance packages. Find him on Google+.

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