PAYDAY Workforce Solutions Blog

White Collar Overtime Exemption Expected to Change

On Jun 25, 2015

Changes to white collar overtime exemption, the Federal Department of Labor’s 29 CFR Part 541, are expected to take place this year, adding expense and administrative burden to employers already struggling with the Affordable Care Act implementation. President Obama’s Presidential Memorandum to the Secretary of Labor, and the Department of Labor’s (DOL) proposed rule submitted to the Office of Management and Budget (OMB), are the driving forces behind upcoming changes to exemption from minimum wage and overtime.

What’s Expected to Change

The President’s intent is to revise minimum wage and overtime rules related to the Fair Labor Standards Act, keep up with changes in the American workplace, and simplify overtime rules for both workers and businesses. To do this, proposed revisions to the Part 541 regulations went to the DOL for consideration and publication was planned for November 2014. The November date was pushed to February 2015, but that has passed with no announcement. Now announced changes are expected by July 2015.

These are the issues that the DOL may be considering:

  • Increasing the current minimum annual salary level for exemption from $23,660 to somewhere between $42,000 and $69,000
  • Adjusting the primary duty test to be something similar to California’s 50 percent rule for non-exempt work, although a more lenient 30 to 40 percent is still possible
  • More changes to the duties tests such as limiting the ability of managers to do management and non-exempt work at the same time, or requiring administrative employees to do work related to management policies instead of the current requirement that the work be “directly related to management of general business operations”

How Changes Will Impact Employers

The salary test change is estimated to affect as many as 10 million workers concentrated in the retail and hospitality industries, making it harder to keep part-time exempt positions. This could affect flexible workplace arrangements and add additional recordkeeping obligations as many exempt employees would likely become non-exempt.

If proposed changes are made to the primary duty test, they may reduce or eliminate managers’ abilities to do line work and management work concurrently, meaning losing the exemption for some front-line managers, or requiring the organization to adapt its culture to the new requirements. This change could also mean additional burdensome time tracking of line work tasks by managers, such as restaurant managers helping out during peak business by answering the phone or checking out customers’ at the cash register, to ensure they didn’t go over the percentage limitation of non-exempt work.

Changes would also affect training issues when exempt employees do non-exempt work to train employees and learn new aspects of the business, limiting application of exemptions for employees and managers of large facilities.

Revisions under consideration could also limit the ability to claim the administrative exemption for administrative and professional roles.

What Employers Should Do Now

The proposed regulations are currently under consideration by the OMB. Before changes are applied to the U.S. workforce, the next steps are publication in the Federal Register, comment by the regulated community, and further consideration such as Congressional hearings.

The Society for Human Resource Management (SHRM) reports that Virginia attorney Paul DeCamp recommends employers prepare now for revised overtime regulations by reviewing current job descriptions, identify with legal counsel any currently exempt positions that may be affected by the changes, discuss and review changes with their management, begin to plan for their business response to changes to the minimum salary threshold (either raises to new exempt status salary levels or change to non-exempt status), and look at how to revise work schedules and pay rates for employee status changes.

Whether your company has been following coverage of the issue in sources like the Presidential Memorandum, Secretary of Labor Tom Perez’s blog, and SHRM, or you’re new to the issue, you need to take action now to review and prepare for how the changes will affect your business.                                      


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