New Proposed Regulations On Overtime Work Bear Close Scrutiny—And Attention

The Fair Labor Standards Act requires employers to pay non-exempt employees at a rate of at least one and half times their hourly rate for overtime work.  There are several exemptions to this requirement, some of which are based on a minimum salary requirement and a duties test.

As expected, the Department of Labor recently issued proposed new regulations which would extend overtime pay to approximately five million workers.  It is estimated that the regulations will affect approximately 40,000 Mississippians.

Under the proposed regulations, the salary threshold will be raised from $23,660 annually ($455 per week) to an estimated $50,440 annually ($970 per week) in 2016. The salary threshold is tied to the 40th percentile of weekly earnings for full-time salaried workers.

While the increase is seemingly large, the salary threshold has only been updated once since the 1970s. According to the White House, the current salary threshold of $455 per week falls below the poverty threshold for a family of four. The proposed regulations will contain a mechanism for automatically updating the minimum salary threshold to prevent this situation in the future. This mechanism will either be tied to the consumer price index or a continuation of the 40th percentile of weekly earnings calculation mentioned above.

Although the proposed regulations are touted by President Obama as requiring fair pay for a hard day’s work, workers may not truly see any benefit if the changes are implemented.  The Department of Labor estimates that the average direct costs to employers will total between $239.6 and $255.3 million per year.

Employers can approach any change in several different ways.

Obviously, an employer may choose to retain its workforce at the same rate of pay and simply pay overtime and bear any additional costs. Most commentators agree that this scenario is not likely to occur.  Similarly, an employer may choose to retain its workforce at the same rate of pay and incur overtime expenses, but pass the increased expenses on to its customers.

Either of these potential scenarios has no real impact on workers, except to the extent that an individual may be forced to purchase more expensive services and products as a consumer.  Alternatively, workers’ actual earned income may be adversely affected if an employer chooses to hire new workers to absorb the overtime hours at a reduced rate. Employers may also reduce the hourly rate for those workers who will become eligible for overtime with the possibility that any potential overtime hours would be reduced, as well.

Even worse, companies may opt to move the work out of the country or automate certain tasks with machines.

Only time will tell which of the above scenarios will prevail if the proposed regulations are implemented. In the meantime, companies have the opportunity to provide commentary through Friday, September 4. The Department of Labor is also seeking input regarding the current duties tests which are also considered in determining whether certain employees meet the remaining requirements to be exempt employees.

The importance of complying with all aspects of the Fair Labor Standards Act cannot be overemphasized. Violations, even inadvertent ones, can be costly to correct and to defend. Once the final regulations are issued, employers must carefully analyze their workforce to ensure compliance with all aspects of the law.

 

 

Ashley Eley Cannady

Ashley Eley Cannady

Ashley Eley Cannady is an attorney at Balch & Bingham LLP. Her practice focuses on defending employers in employment related disputes before courts and administrative agencies. She also regularly provides advice to employers and management regarding compliance with Title VII, FMLA, FLSA, ADA, ADEA, and the WARN Act. Additionally, she assists employers with issues arising out of employment agreements and covenants not to compete and with discipline and termination matters. Ms. Cannady is a member of the Mississippi Bar Association and Mississippi Women Lawyers Association. She is admitted to practice before all Mississippi State Courts, the United States District Courts for the Southern and Northern Districts of Mississippi, the United States Court of Appeals for the Fifth Circuit, and the Supreme Court of the United States.
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