President Obama has directed the Department of Labor (DOL) to “modernize and streamline” overtime exemption regulations (29 C.F.R. Part 541) that define the scope of exempt status employees under the Fair Labor Standards Act (FSLA). The primary focus of the White House’s directive concentrates on three areas:

  1. Increasing the minimum annual salary level from its current $23,660;
  2. Redefining the duties requirements to qualify for the executive exemption; and
  3. Updating the definition of a computer professional to accommodate this rapidly changing profession.

Proposed changes to exempt status would affect millions of businesses and their employees. For example, consider working managers who are currently classified as exempt because they oversee at least two employees. Employers will be required to either raise salaries above the new, yet to be determined threshold, or pay these managers by the hour, including time and a half for hours in excess of 40 per week. Consequently, employers who are unable or unwilling to raise salary levels will need to manage employee schedules more carefully to contain costs, preserve profit margins, and maintain compliance. Employee perks like working from home or flex scheduling would likely diminish, becoming an administrative burden too cumbersome to manage. Businesses would be required to either increase head count to maintain current productivity levels or pressure existing workers to increase output. Ultimately, it could disproportionately hurt smaller businesses that often operate on slim margins held captive to restrictive budgets that may not be able to accommodate these drastic changes.

It is common for employers to shift employees into exempt positions to save on over-time pay. But if an employee is classified as exempt they need to fall within one of five specific exemptions. Under the current classification there are three categories of “white collar” employees that qualify for the exempt status, executives, administrative managers, and professional employees, and each must carry out a specific scope of duties. Additionally, these “white collar” employees must receive a salary of at least $455 per week or $23,660 a year. There is an exempt classification for some computer professionals as well that similarly requires a minimum salary or hourly wage and is limited to a specific scope of job duties.

It is too early to determine when DOL will implement changes to overtime exemption regulations. Amendments made in 2004, which established the current salary and scope of duties requirements, took years to implement. There is no doubt that this mandate will be an important topic for business leaders to keep abreast of as it will have a substantial impact on workforce management. For now, the best course of action is to take this opportunity to look into the current exemption laws and ensure your organization is in compliance; while keeping ears and eyes open for potential changes on the horizon.

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