President Obama recently signed a presidential memorandum suggesting that the U.S. Department of Labor (DOL) propose new rules regarding employee overtime exemption regulations for white collar workers under the Fair Labor Standards Act (FLSA).

The Presidential Memorandum demands an update to the FLSA regulations for workers who qualify for overtime protection. It states that these exemptions, “have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage.”

Since 2004, the salary threshold for overtime pay eligibility has been $455/week which makes the annual threshold $23,600 for the white collar exemption. The “primary duty” test which determines whether workers are manager was also last revised in 2004.

Labor Secretary Tom Perez said that new rules governing overtime exemptions are due for an update because “quite literally somebody can work 1 percent of their time on management issues, 99 percent stacking the shelves and doing other work that has nothing to do with management, and you’re considered a manager, and you are no longer entitled to overtime.”

The new regulation will most likely focus on the following three areas:

  • Change to minimum salary level. The new rules will most likely change the minimum salary level for overtime exempt employees. The rules may link those increases to inflation indexes as well as authorize an annual cost of living adjustment.
  • Change to duties test. The DOL will either remove or make big changes to the primary duties test, specifically the “concurrent duties” section of the executive exemption test that provides an exemption for managers performing the same duties as the employees they manage.
  • Change to computer professional exemption. A separate computer professional exemption was included was included in the 2004 overtime regulation updates. With major changes in the technology field in the last decade, the DOL will probably revise the qualification standards for meeting this exemption.

The effect on small businesses won’t be known until the DOL makes its recommendations, but the new rules could make millions of employees eligible for overtime pay by setting a new standard for the white collar exemption. Business groups are arguing that this move would eventually hurt workers and the economy, since employers will likely scale back hours to avoid paying overtime.

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