Last month, President Obama announced his intention to use the administration’s federal rule-making authority to make significant changes to federal overtime rules. If implemented, these changes could have a significant impact on small businesses, particularly those that employ salaried workers as opposed to those who employ hourly workers.

The federal government has the authority to regulate wages and working conditions through the Fair Labor Standards Act (FLSA), which covers almost all American workers. Among its provisions is the requirement that employers pay workers time-and-a-half for hours worked in excess of 40 hours per week.  The proposed change would affect a commonly used exception to this rule which exempts salaried executive, administrative, and professional employees who earn over $455 per week from the overtime requirement.

While specifics regarding the proposal have not been made public, the President has made clear that the changes will likely include lowering the current weekly income threshold, as well as revising the current test to determine whether workers are managerial or non-managerial. In remarks made prior to signing a memo directing the Secretary of Labor to modify the current rule, President Obama stated that “. . . an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year.  So if you’re making $23,000, typically, you’re not high in management.  If your salary is even a dollar above the current threshold, you may not be guaranteed overtime.  It doesn’t matter if what you do is mostly physical work like stocking shelves, it doesn’t matter if you’re working 50 or 60 or 70 hours a week — your employer doesn’t have to pay you a single extra dime.”

While supporters claim that the proposal will stimulate the economy by putting more money into the hands of workers, critics counter that the increasing overtime pay will put strain on an already shaky economy. Regardless of the result, the fact is that when these changes take place many employers will need to update their existing policies and make sure that they are in compliance with the new regulations.

Consulting with an experienced attorney can be extremely helpful in ensuring that your employment policies are effectively minimizing your legal liability. The cost of an employee lawsuit can be tremendous, and may involve civil penalties as well as the cost of any judgment awarded to your employee.  Working with a small business before any issues arise may save a business significant money and avoid the lost productivity that often accompanies employer-employee disputes.



- Claire Kalia


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