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U.S. Department Of Labor Proposes Sweeping Change To Overtime Pay Rules


Posted on July 02, 2015

Yesterday, the U.S. Department of Labor (“DOL”), proposed a change to federal overtime pay requirements that would increase the minimum salary a worker must earn to qualify for a “white collar” exemption under the Fair Labor Standards Act (“FLSA”) from $23,660 per year to $50,440 per year.  If adopted, the rule would affect approximately 5 million white collar employees, requiring employers to pay time and a half to individuals making up to the new $50,440 threshold when they work more than 40 hours a week.

Currently, the FLSA exempts white collar employees from overtime requirements if they are: (1) salaried (paid a predetermined and fixed salary not subject to reduction due to variations in the quality or quantity of work performed; (2) are paid at least $455 per week ($23,660 annually);  and (3) primarily perform executive, administrative, or professional duties.  The DOL indicated that it was not making specific proposals to modify the third prong of the exemption, known as the “duties test”, but invited comments on whether the test was achieving the intended effect.

Some analysts have speculated that DOL may look at California’s approach to overtime pay as a model for changing the rule.  Under California’s rule, employees are required to spend more than 50% of work time on tasks that are exempt from minimum wage and overtime requirements, in order to qualify for the “white collar” exemption.

Proponents of the rule claim that it will clarify overtime requirements because an employee’s entitlement to overtime pay will be determined on the basis of the bright-line salary threshold.  They argue that certain businesses currently classify workers that fall under the $23,660 salary threshold as supervisors to avoid paying them overtime.  Those favorable to the new rule argue contend that it will clarifying the issue, thereby eliminating a number of lawsuits by working who allege to have been misclassified.  On the other hand, opponents of the rule have argued that it will discourage businesses from placing employees in salaried positions, or demoting employees from full time to part time in to save money.

The task of properly classifying employees, and paying the associated overtime pay, falls to employers. The cost of misclassifying an employee as exempt, when he or she is not, can be substantial.   Damages for misclassification can include liability for back wages, taxes, penalties, interest, and attorney’s fees. Recently, bankers for a large financial institution obtained a settlement of $22 million in a lawsuit that claimed that they had been misclassified as exempt.

Because businesses have such great exposure to these claims, it is extremely important for employers to carefully consider the the classification of their employees. If you have questions regarding the proposed DOL rule, or any other aspect of Ohio labor law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or tharpst@harpstross.com or nhorrigan@harpstross.com.

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