President Obama directed the U.S. Department of Labor to update the Fair Labor Standards Act (FLSA) to require employers to pay more of their salaried employees overtime. As you may know, under FLSA, employers must pay non-exempt employees (hourly) overtime pay at a rate of one and a half their regular rate of pay for hours worked in excess of 40. Exempt workers (usually salaried) are “exempt” from the overtime pay requirements as long as the individuals are employed in a bona fide executive, administrative, professional, or outside sales force capacity. To qualify for this exemption, the employee must be paid at least $455 per week or $23,660 per year and meet certain other requirements under the FLSA. The President wants to significantly raise this pay threshold, making many exempt workers non-exempt and requiring employers to now pay them overtime.
While it is estimated that it will take the Department of Labor at least a year to finalize any changes, it is a good idea to begin reviewing all your exempt positions now. Positions should be “tested” to ensure they meet the current means test (paid at least $455 per week) and qualify under the duties test. This latter test is complicated, but that should not deter you. The penalties for misclassifications are significant.