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.

Did You Know That Certain Salaried Employees Are Entitled To Overtime Pay?

Shavitz Law Group

An Overview of the Three Criteria All Salaried Employees Should Review

Many of us believe that if we are paid a salary we are not entitled to overtime pay.   But the truth of the matter is that being paid a salary does not determine your rights to overtime pay under the law. In fact, many employees are being cheated out of pay owed to them, simply because their employer told them they are salaried employees and “therefore not entitled to overtime pay.”  Unfortunately, employers often misclassify their employees as exempt from overtime and deprive employees from these hard earned overtime wages.

A vocabulary lesson:  Employees that are classified “exempt” are not entitled to overtime wages.  Employees’ classified “non-exempt” must be paid overtime wages for any time that exceeds 40 hours in a work week.  For the purpose of this discussion, just consider that exempt employees are considered ineligible for overtime pay.  But, employers frequently intentionally or unintentionally misclassify their employees as exempt – which can illegally deprive them of overtime pay.

So how do you know if your job should be classified exempt or non-exempt under the law? The Fair Labor Standards Act, which is the Federal law that governs fair pay, outlines 3 tests we can use to help us determine whether an employee is exempt or non-exempt under the law:

  • The Salary Test – The employee must be compensated on a salary basis at a rate at least $455.00 per week to be considered exempt from overtime.  The employee is paid on a salary basis if he/she can count on receiving a “guaranteed minimum” amount of money for any week he/she performs work.  Employees who earn less than $455 per week should be paid overtime wages.
  • The Duties Test – Job titles do not determine exempt status.  Banks typically have Assistant Managers in hundreds or thousands of their branches, an example of a title that can have little meaning.  However, it is the actual job tasks an employee must complete and how the job fits into the employer’s overall operations which determine whether an employee is entitled to overtime pay.  Thus, many employers assign a salaried employee a “glorified” title in order to make their employees think that they are not due overtime pay. Title is just one aspect of the Duties Test, but it is included since it is such a common misconception that the title of “manager” automatically entitles an employer to pay their employees a salary only for all of their work.
  • The Exemption Test – the employee does not fall under one of the exemptions for overtime under the Fair Labor Standards Act.  (Professional Exemption, Administrative Exemption, Outside Sales Exemption, Executive Exemption, Computer Employee Exemption, Highly Compensated Employees Exemption.) http://www.dol.gov/whd/regs/compliance/fairpay/fs17a_overview.pdf

Determining the difference between exempt and non-exempt can be confusing and often takes an experienced employment attorney to analyze the law and the employee’s specific job duties, to determine whether the employee should be compensated for overtime wages.

So remember that being paid a salary in itself does not necessarily mean you are not entitled to overtime pay.  If you feel that your employer may have misclassified you as exempt from overtime pay please contact the Shavitz Law Group for a free consultation at www.shavitlaw.com or 888-941-9111 or email us at [email protected].