On March 13, 2014, President Obama directed the U.S. Department of Labor (“DOL”) to narrow the Fair Labor Standards Act (“FLSA”) “white collar” exemptions, which could result in overtime being paid to “millions” of workers who currently are not eligible for overtime.  The President’s actions on this issue could result in a lengthy administrative review and potential legal challenges.

The FLSA requires employers to pay employees who are not exempt from its overtime provisions time and a half for hours worked over 40 hours in a workweek.  The FLSA provides an exemption from overtime pay for employees in bona fide executive, administrative, professional and outside sales positions.  To qualify for these “white collar” exemptions, employees must be paid at least $455/week on a salary basis and must meet certain other factors such as supervising other employees or exercising independent judgment on significant matters, among others.

These proposed changes could have a significant impact on employers. They could result in millions of workers being reclassified from salaried exempt (not eligible for overtime pay) to non-exempt (eligible for overtime pay for hours over 40 worked in a workweek). The President’s direction to the DOL would result in raising the weekly minimum salary from its current $455/week to some unspecified higher weekly rate.  It also is expected to result in proposed changes that would tighten the requirements to meet the “white collar” exemptions. This could result in causing employers to pay higher salaries to employees to ensure they remain above any new exempt threshold or leaving them at their existing salary and paying them overtime.  Either way, the added costs to employers could be significant.

Any proposed changes to the “white collar” exemptions would be subject to the DOL’s normal rulemaking process, which requires notice to the public of any proposed changes and an opportunity to comment.  Because of the significant effects any changes could have on employers, this is an issue you should continue to monitor as it moves through the administrative process.

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