Executive Directive to Change FLSA Will Have Substantial Impact on Employers

Road Warrior TaxIt is anticipated that this week, President Barack Obama will formally announce a directive to the Department of Labor to change the Fair Labor Standards Act (FLSA), revamping regulations to require overtime pay for several million exempt employees who are currently classified as “executive or professional.”

Why the change to the FLSA?

According to Bloomberg BNA, the initiative is expected to focus on tightening the qualifications for workers to be classified as bona fide executive, administrative, professional and outside sales employees. These so-called white-collar employees are currently exempt from the FLSA’s general requirement that workers be paid time and a half for all hours worked in excess of 40 each week. In commenting on President Obama’s plan –  Kevin Hyde, the chair of Foley & Lardner’s labor and employment practice, posed, “If your goal is to raise the minimum wage but you don’t think you can do that politically, this is a way to raise wages for a group of employees. Really, it’s an effort to find a way to raise the wages of lower-wage workers,”

Short term benefit, long term trouble

In an article from Fox Business, while the move will likely make low-wage workers happy in the short term, Brookings Institution labor expert Gary Burtless says creating a larger population of workers classified as “executive or professional” will hurt workers in the long run.

“The problem will be if supervisors or candidates are getting overtime pay, and employers know that too, there will be tougher negotiations over standards of pay,” Burtless says. “Someone who is a manager of a fast food restaurant might not be that well paid, and because they are currently supervisors they don’t get paid for working more than 40 hours a week. If they start getting paid time and a half, the company can arrange to have that pay lessened.”

The expansion of overtime could force companies to hold back on hiring, or slice their workers’ hours to remain under the full-time threshold and 30 hours a week, critics maintain.

Changes to FLSA will impact both employees and employers

Under the FLSA 541 Regulations, an employee qualifies as exempt from the overtime requirements if he or she satisfies a “duties test” (does specific job responsibilities under the executive, administrative, professional, computer and outside sales regulations) and the employee is paid on a “salary basis” (that is, salary does not fluctuate based on hours that the person works). Under the current regulation, the employee must be paid a salary of $455 per week to meet the salary basis test. If the changes to the overtime regulations are made, it will fall to the Labor Department’s wage and hour administrator to put them into effect.

Although specific changes to the duties tests have not been identified, it is likely that the changes will touch almost every employer and employee in the country. According to press reports, the proposal will likely include an increase to the “salary basis” amount from $455 a week “by a significant amount.” This means that a substantial number of employees currently classified as exempt from the overtime requirements would be eligible for overtime pay.