This week, the Department of Labor announced a new rule that will expand the protection of federal overtime pay law to millions of workers, including more than a hundred thousand Ohioans. According to the Department and the White House, the new rule—which was long-anticipated—will bring approximately 4.2 million white collar, but low-income, workers within the protection of the federal overtime pay law, the Fair Labor Standards Act.
Exemptions from the overtime rule
Passed in 1938, the Fair Labor Standards Act, or “FLSA,” established the rule that certain employees who work more than 40 hours in a given workweek must be paid at time-and-a-half their regular hourly wage for any hours worked over 40 during that week. However, the FLSA has many significant exemptions. One particular set of exemptions exclude from overtime protections “any employee employed in a bona fide executive, administrative, or professional capacity.” Commonly referred to as the white collar exemptions, they were premised on the notion that “executive, administrative, or professional” employees are ordinarily higher wage earners with better benefits, job security, and opportunities for advancement than many others in the work force. Congress therefore determined that they did not necessarily need the FLSA’s overtime protections as much as their blue collar co-workers.
While there are three separate tests under the umbrella of the white collar exemptions—one for each category of employee listed—they do share a common thread: the salary basis test. Under current law, white collar employees who earn the equivalent of $455 per week (equating to $23,660 a year) are exempt from the FLSA’s overtime protections, assuming they meet the other elements of the pertinent exemptions, which primarily focus on job duties. The salary basis test was intended as an objective means to screen out those white collar employees whose jobs do not suggest a need for the protections of the overtime law.
But the salary basis test poses an inherent challenge: inflation. As inflation rises over time, the threshold level effectively sinks lower and lower in terms of real value. The current threshold level of $455 per week actually falls below the poverty line for a family of four. Many would argue that Congress did not intend for employees living below the poverty line to be excluded from the FLSA’s overtime protections, even if they work in an office setting. While the Department of Labor has updated the salary level floor seven times since 1938, until this week, it had not done so since 2004.
New overtime protection for 4.2 million Americans
Last Summer, we wrote about comments made by President Obama, directing the Department of Labor to update the salary basis threshold in the white collar exemptions. This week, the Department of Labor announced it has done so, and in a significant way. The new rule, which will take effect on December 1, 2016, doubles the salary threshold for application of the white collar exemptions, from $23,660 to $47,476 per year (or more accurately, $913 per week). Employees earning more than the former and less than the latter will no longer be excluded from overtime protection by virtue of their salaries. The Department of Labor estimates that this change will make an additional 4.2 million workers—134,000 of them in Ohio—eligible for overtime pay at time-and-a-half. Just as importantly, the salary basis threshold will now be automatically updated every three years, so that inflation does not erode the FLSA’s critical protections for those who need it. The Department made no changes to the “duties” aspect of the white collar exemptions.
For those who are curious, the Department of Labor did not pick the new salary basis threshold out of a hat. Rather, it set the standard at a level equal to the 40th percentile of earnings for full-time salaried employees in the lowest-wage region from the most recent Census (currently, the South). As the threshold is updated in the future, it will be tied to the same 40th percentile metric from whatever region of the country is then the lowest-earning.
Proponents of the new rule (most notably the Secretary of Labor and the White House), suggest several benefits from updating the white collar exemptions. Most obviously, the new rule provides added income for many middle class families, or at least more free time. The updated rule gives employers a choice to either pay these employees for their overtime work, or not force them to work overtime in the first place. Among the other suggested benefits, employers might decide to hire new employees to work additional hours instead of paying existing employees at time-and-a-half. Only time and experience will tell if these expected benefits are borne out. Regardless, for some low-wage salaried employees in Ohio and elsewhere, the Department’s announcement this week brings hope for a new economic cushion.
Have you been denied overtime pay?
If you think you may already be entitled to overtime pay that you have been denied, contact a Cleveland employment attorney who handles overtime pay disputes. At Bolek Besser Glesius LLC, we have considerable experience helping employees who have been denied either overtime pay, minimum wage, or both. We might be able to help you too.