President Obama and the Department of Labor Propose to Extend Overtime Benefits to Millions of Americans

Owen H. Laird, Esq.

On Monday, June 29, 2015, the Department of Labor and President Obama announced a proposed rule change to the Fair Labor Standards Act (“FLSA”) that would increase the number of Americans eligible for overtime pay.

The FLSA requires that employers pay certain employees overtime. Specifically, employers must pay employees overtime for all hours worked above forty each week, at a rate of one and a half times their normal rate. Not all employees are covered by the FLSA; for example, employers do not need to pay overtime to administrative, executive, or professional employees; employees who are not entitled to overtime pay under the FLSA are “exempt.” However, the FLSA also creates an exception to these exemptions: if the exempt employee earns less than a certain salary threshold – currently set at approximately $23,660 per year—then the employee is not exempt, and is entitled to overtime pay.

The proposed rule change moves that salary threshold up to $50,440 per year. If put into effect, this would mean that all employees who make between $23,600 and $50,440 per year would be entitled to additional pay for all overtime work done. For example, an assistant manager at a retail store—typically an exempt position—earning $40,000 a year but working fifty hours a week with no overtime pay would be entitled to thousands of dollars of additional overtime pay each year.

The salary threshold was last adjusted decades ago; since then millions of jobs that were once eligible for overtime have become exempt, primarily because of inflation. The proposed rule seeks to change that—$50,440 has roughly the same purchasing power as $23,600 did back in the 1970s.

The overall effect that this proposed rule change will have on the workforce is difficult to predict. Many employers rely on exempt employees to work long hours, so requiring those employers to pay their employees overtime could result in several different scenarios: the employer may decide to cap an employee’s workweek at forty hours and hire additional workers, providing more free time to existing workers and creating additional jobs; the employer may decide to simply pay their employees more, resulting in significantly more take-home pay for their existing workers; the employer may decide to scale back, and cap an employees working hours without hiring extra help; or the employer could decide to give their previously exempt employees a raise to more than $50,400 per year, so that they are again overtime exempt. Each of these options would benefit the worker.

Although the announcement of this proposed rule change is a major victory for workers, there still is a long way to go before it is put in effect. After the Department of Labor files a Notice of Proposed Rulemaking, there will then be a comment period, during which the public can submit comments to the Department of Labor on the proposed rule. Undoubtedly, corporate interests and various chambers of commerce will loudly and vehemently oppose the rule. Then, should the rule go into effect, the Department of Labor will likely face a lawsuit from those same moneyed interests, claiming that the rule is illegal.

If the Department of Labor prevails and the rule goes into effect, then millions of workers will feel its benefits. If you think that you have been denied overtime pay, contact The Harman Firm, LLP.