Last night, President Obama unveiled a plan that could give as many as five million Americans overtime pay that they would otherwise be ineligible for under current law. The Federal Labor Standards Act (FLSA) currently exempts some employees from overtime if they receive a salary higher than $455 per week. The President’s proposal raises this exemption threshold to $970 per week.
The FLSA was enacted in 1938 in part to regulate employee compensation. The regulations include a required minimum wage for most employees, and overtime pay for certain employees who work longer than 40 hour weeks. Any hour worked over 40 in a workweek must be paid 50% more than the employee’s regular wage.
The requirements do not apply to all employees, however. The FLSA provides rules on when an employee is exempt from being paid overtime. For most exemptions the employee must be paid a salary greater than $455 per week and have certain primary duties listed in the regulations. To qualify for the executive exemption, for example, an employee must have the primary duties of managing and supervising a subdivision of the organization, with the authority to participate in the hiring and firing of other employees. The employee’s official title does not fulfill the primary duty requirement.
Due to the FLSA’s salary threshold, an estimated 92% of salaried employees are ineligible for overtime pay under federal law, no matter how many hours they have worked in a week. Some individual states have created salary thresholds even higher than provided by the FLSA to allow more citizens to be eligible for overtime pay. President Obama’s new regulations are intended to increase overtime eligibility to approximately 40% of workers.
If the proposed regulations succeed, they may be enacted as early as 2016. Employers must take steps during this time to assess whether any salaried employees lose their exemption status and then plan accordingly.