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Labor Department Unveils Massive Overtime Expansion Plan

Jul 1, 2015 / Media Coverage / Law360 — Ben James

The U.S. Department of Labor unveiled a proposed rule Tuesday that would broaden federal overtime pay regulations to cover nearly 5 million more people and raise the minimum salary threshold required to qualify for the Fair Labor Standards Act's “white collar” exemption to $50,440 per year.

President Obama signs a memorandum directing the Labor Department to "modernize and streamline" FLSA overtime regulations on March 13, 2014. (Credit: White House) The highly anticipated proposal stems from a memorandum President Barack Obama issued in March 2014 that directed Labor Secretary Thomas Perez to “modernize and streamline” the regulations on exemptions from the FLSA's minimum wage and overtime pay requirements. The proposed rule was sent to the White House Office of Management and Budget in May.

“This proposed overtime rule goes to the heart of what it means to be middle class in America,” Perez said during a press call Tuesday morning.

The proposal is expected to be published in the Federal Register in the next few days, triggering a 60-day comment period.

Under current regulations, employees have to meet certain job duties-related tests and be paid at least $455 per week — or $23,660 annually — on a salary basis in order to be exempt from minimum wage and overtime requirements under the FLSA exemption for executive, administrative, professional, outside sales and computer employees.

The proposal calls for raising that salary level, last updated in 2004, to equal the 40th percentile of weekly earnings for full-time, salaried workers, bringing it to a projected level of $970 per week, or $50,440 annually.

The DOL is also proposing automatically updating that salary threshold in order to stop it from becoming outdated as time passes between rulemakings.

In the rule's first year, an estimated 4.6 million exempt workers who make at least $455 weekly but fall short of the 40th earnings percentile would become entitled to minimum wage and overtime protections, absent some intervening action on the part of their employers, the DOL said.

The proposed regulations include changes to the duties tests applicable to the white collar exemptions, but the DOL said it was considering whether changes to those tests were needed.

The proposal listed five issues the agency was seeking input on, including what if any changes ought to be made to the tests and whether the DOL should look to California — where a worker has to spend at least 50 percent on their time on exempt duties to qualify for an exemption — as a model.

Management-side lawyers awaiting the proposed rule have expressed more concern about changes to the duties test — and a potential move to a California-style quantitative standard — than an increase in the bright-line salary threshold.

The proposed salary floor will likely decrease litigation, said Outten & Golden LLP partner and class action group co-chair Justin Swartz, who represents employees.

“Employees and employers should welcome the new rules because the salary basis threshold is a clear line that's easy to interpret and will cut down on misclassification lawsuits,” Swartz said Tuesday. “The new rules would level the playing field so that employers that are already paying their employers fairly won’t be at a disadvantage.”

Labor unions also voiced support for the proposal on Tuesday. Trade group the National Retail Federation, however, wasted no time blasting the proposed regulations.

“The administration seems to be under the distorted impression that they can build the middle class by government mandate. Turning managers into rank-and-file hourly workers takes away the career opportunities offered by private sector entrepreneurs and job creators that are the true path to middle-class success,” David French, NRF senior vice president for government relations, said in a statement.

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