Proposed New Regulations Would Raise Income Threshold for Wage & Hour Exemptions

Federal wage & hour laws require payment of overtime to all employees who (1) work more than 40 hours a week and (2) are not exempt as a result of the type of job they perform.  Some of the exemptions are discussed here.  The income threshold for the exemptions has been the same for many years, as wages and the cost of living have increased across the board.  As a result, the percentage of American employees who qualify for an exemption has also increased, and many employees have been in the position of working more than 40 hours a week without earning overtime pay for doing so. 

The US Department of Labor has proposed raising the income threshold for overtime exemptions to about $970 a week in 2016, more than double the current threshold.  The proposal contemplates establishing automatic increases in the threshold over time, tying it to the 40th percentile of weekly wages for full-time workers nationwide.  The effect of this change will be that, once the regulation is adopted, many employees who previously held positions considered exempt from entitlement to earn overtime pay will immediately become eligible to earn overtime pay under federal law.  Companies will wind up either paying these employees more as overtime pay, or reassigning some of their duties to others so that they will not be expected to work more than 40 hours a week.  Employees who become eligible to earn overtime pay as a result of this change will likely see an earnings increase.  Commentators sharply disagree over the impact that this change will have on businesses and the economy. 

The proposed regulatory changes are subject to a public comment period and could be revised in response to comments.  The final regulations are unlikely to take effect until sometime in 2016.  But, employers are well advised to monitor the situation and prepare before the regulations become effective.   

Businesses should be aware that a handful of states and cities have adopted rules that are stricter than the federal rules – meaning that overtime must be paid to some employees in those jurisdictions even though they may be exempt from earning overtime under the federal regulations.  To ensure compliance with all applicable laws, employers should consult counsel familiar with the laws applicable to all locations where they have employees. 

The analysis set forth in this article is provided for general understanding only and should not be considered legal advice.  Counsel should be consulted regarding any specific legal issues.

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