Employee Classification Changes Coming Your Way: Overtime Compensation Costs Could Rise

Do you struggle with determining if a position is exempt or non-exempt from overtime?  If so, pay attention because in March President Obama issued a directive to the Department of Labor (DOL) to simplify regulations under the Fair Labor Standards Act (FLSA). Sweeping changes are expected to be announced in November 2014 that include significant emphasis on how overtime exemptions are determined for executive, administrative, and professional employees commonly referred to as “White Collar Exemptions.” These changes, which do not necessitate congressional approval, could increase your organization's overtime compensation costs.

Current Regulations:

  • Must be paid a salary of at least $455 per week.

  • Must meet certain “duties tests” as determined by the DOL.

    • Executive Exemption: Primary duties include the management of an enterprise, department or subdivision; must direct the work of two or more people, and have the authority to hire and fire or make suggestions and recommendations related to hiring, firing, and/or other changes in employee status.

    • Administrative Exemption: Primary duties include office and non-manual work related to management or business operations; exercises independent decision-making discretion on matters of significance.

    • Professional Exemption: Primary duties require advanced knowledge; often referred to as a “learned professional,” or a “creative professional” working in a field requiring artistic or creative talent, imagination, originality, and invention. The third exemption under this category relates to the “teacher exemptions” whereby the primary duties must include teaching, tutoring, instructing, or lecturing and the person is employed as a teacher for an educational institution.

Proposed Regulations:

  • May double the weekly salary to as much as $910 per week, or $47,320 annualized.

  • May change the “duties test” for the executive exemption to require a higher percentage of time be spent performing managerial duties. This would mean those non-managerial duties performed, if significant, would change the exemption status and thus qualify the employee for overtime pay.

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