Obama’s Overtime Law Changes: What it Means for Employees and the Economy

Shavitz Law Group

On March 13, 2014, President Obama will direct the Department of Labor to revamp its regulations so that more workers will be entitled to overtime wages.  Since 2004, when the current regulations were last revised, employers have been able to take advantage of certain exemptions for employees they characterize as manager/executives, administrators, or professionals.  With the new changes, fewer employees will fit the criteria for these exemptions, with the effect that more employees will be eligible for overtime pay.

President Obama does not need Congressional approval for the changes.  He has directed the Secretary of Labor to expand the availability of overtime by executive order.

These new regulations will affect millions of workers across the United States in almost every sector of the economy – from fast food workers to computer technicians to clerical workers.    The net result of the new regulations is more money in workers’ pockets.  By boosting workers’ spending power, this increase in wages will have a positive net effect on the economy.  Accordingly, these new regulations will benefit on the country as a whole.

The new changes will affect the criteria for the exemptions in two ways.   The new regulations will increase (1) the “salary basis” requirement; and (2) the percentage of time a so-called exempt employee spends actually managing or administrating.

As to the first change, under the present regulations, an employee need only make $455 per week to satisfy the “salary basis” requirement for these overtime exemptions.  By raising the amount of the “salary basis,” fewer employees will qualify for the exemption.  Because the “salary basis” is a mandatory requirement for these exemptions, if fewer employees can satisfy the salary basis, the more employees will be eligible for overtime.

For workers, raising the salary basis requirement will be a win-win.   Either workers who previously were not eligible for overtime because they made more than $455 (say, $460 per week, or $23,920 per year, which is barely above the 2013 poverty guidelines for a family of four) will now be eligible for overtime wages; or employers who still want to take advantage of the exemption will have to raise the weekly salary to the higher threshold to be established by the new regulations.

As for the exact amount of the new salary basis threshold, those criteria may be raised to reflect the present-day value of the current $455 per week.  Given inflation, that would put the salary basis threshold around $533.  However, the new threshold could be even higher.  A White House official, speaking anonymously, noted that the Labor Department first set the salary threshold in 1975 at $250 per week, which would be $970 in today’s dollars.  Whatever the new salary basis, it likely will have an automatic, built-in increase which would be tied to inflation.

As to the second change, the current regulations have been interpreted such that if an employee is “supervising” only 5% of the time, then that employee could be considered a manager who is exempt from overtime.  Under the new rules, in order to trigger the managerial/executive exemption, there would be a threshold percentage of time spent supervising.

This also is good news for employees who engage in manual or clerical labor for 45, 50, or even 60+ hours per week, but who are conveniently classified as “managers” because they are given some token authority to supervise other employees for a small percentage of their time.  In reality, these so-called managers really are performing the same duties as the workers they supposedly are supervising – who are eligible for overtime.  These new regulations will negate the token authority and require employees to exercise real supervisory control over other employees for a significant percentage of their time before they could be considered an executive who is exempt from overtime wages.

One other positive effect may be that employers will opt to hire more employees rather than pay additional overtime wages, which in turn would decrease unemployment.