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Labor Department’s Overtime Proposal

Labor Department’s Overtime Proposal

Last month the Department of Labor proposed a plan to increase the overtime threshold extending overtime protections to nearly 5 million white collar workers. The Fair Labor Standards Act (FLSA or Act) guarantees a minimum wage and overtime pay at a rate of not less than one and one-half times the employee's regular rate for hours worked over 40 in a workweek. While these protections extend to most workers, the FLSA does provide a number of exemptions.  One exemption is for the payment of minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. This exemption is referred to as the FLSA's "white collar'' exemption. The proposal does not need congressional approval to pass, but will go through a public comment period.

Who will be eligible?
Prior to the proposal, the standard salary level required for exemption is $23,660 per year.  The proposal would guarantee overtime pay to most salaried workers earning less than $50,440 next year. This number would be modified each year to prevent outdating of the limit.

How will it affect employees?
"White collar'' employees having a salary under the new threshold in 2016 would be able to get overtime pay. The new regulation could also change the way employees are working. If their employer does not want to pay the overtime, employees may not have as much flexibility in their schedules. They might not be able to work extra hours in order to get projects done. This will be especially true for managers who usually do work extra hours.

How will it affect businesses?
While many employees are excited about the prospect of being paid overtime, some businesses are not as enthusiastic. The new threshold would require businesses to budget for the extra money that will be paid to their employees. Organizations will also have to monitor hours even more if they do not wish to pay overtime.

Small businesses, retail stores, and restaurant chains are among the most concerned about the proposed regulation. Some small businesses may not be able to afford to pay their salaried employees more. Restaurant chains and retail stores are worried because many of their managers would be eligible for overtime. For all types of organizations, this will increase business costs. In turn, businesses may have to cut down on benefits and also reduce their workforce.

In all, there is mixed review on the proposed increase in the overtime pay threshold. Many employees are excited, but some are worried about the possible hour restriction on the work they are able to get done. Some businesses are not phased, but many will have to prepare for the difficulties of the changes that the new regulation will bring.

Article written by Sarah M. Brinson, for additional information please contact Jill A. Blanco at jlblanco@herbein.com.