President Obama Proposes Changes to Salary Basis Requirements for FLSA Overtime Exemptions
On March 13, 2014, President Obama signed a presidential memorandum directing the U.S. Department of Labor to update regulations to make more employees eligible for overtime under the Fair Labor Standards Act (FLSA).
One of the primary ways that the new regulations would make more employees eligible for overtime is by increasing the salary thresholds for the FLSA’s salary basis requirements. Currently, in order to qualify for the executive, administrative, learned professional, or creative professional exemptions under the FLSA, most employees need to be paid at least $455 per week on either a salary basis or fee basis. The last time this amount was updated was in 2004. Employees who are paid the minimum amount of $455 per week to qualify for an exemption earn an annual salary of $23,660.
Because the presidential memorandum does not specify a new amount for what the salary threshold for FLSA exemptions should be, the Department of Labor will have to address that issue when it issues proposed regulations on the subject. According to the Washington Post, administration officials are considering setting the new threshold somewhere between $550 per week ($28,600 per year) and $970 per week ($50,440 per year). If the $455 amount established in 2004 had kept pace with inflation, it would currently be $553 per week ($28,756 per year). It is estimated that if the salary threshold was raised to $553 per week to keep pace with inflation, approximately 3.1 million workers would become eligible for overtime under the FLSA.
Takeaway: Employers should pay close attention when the Department of Labor issues proposed regulations for updating the FLSA’s salary basis requirements. Once the new threshold is established and takes effect, certain employees will either need to receive a raise or begin receiving overtime pay.