A legal take on overtime

By Margaret M. Sheahan

Will President Obama”™s call for overhaul of the overtime exemptions result in a huge raise for those regularly putting in more than 40 hours a week? Has he proposed something akin to a supervisors”™ supplementary salary subsidy via these proposed regulations.

Maybe yes. And maybe no. But certainly not yet.

Clearly, change is in the wind but it will take some time to learn whether and how it will affect any individual or organization.

In a brief East Room ceremony recently, President Obama directed the U.S. Department of Labor to revise the rules that excuse employers from paying overtime to white collar workers. “Millions of Americans aren”™t getting the extra pay they deserve” when they work overtime, he said, to explain this part of his strategy to reduce economic inequality.

The federal Fair Labor Standards Act generally requires that non-exempt employees be compensated at no less than the minimum hourly wage and, for work performed in excess of 40 hours in a week, be compensated at 1.5 times their regular rate. The Act also provides exemptions from these requirements, including for anyone “employed in a bona fide executive, administrative, or professional capacity,” dubbed the “white collar exemptions.” Federal regulations, describe these jobs that do not require overtime pay. One of these, the “executive” exemption, applies to employees earning a salary of at least $455 per week and supervising at least two other employees.

The last time the U.S. Department of Labor amended the white collar regulations was ten years ago when the minimum salary level for the exemption went from $155 per week to $455, among other revisions.

To more accurately reflect today”™s white collar compensation levels, it seems reasonable to expect that there will be an increase in the $455 level in response to the President”™s request.

However, a small increase really should not strike fear into the hearts of Connecticut employers. Our state already requires overtime pay for those earning up to $475 per week.

The President”™s memorandum to Secretary of Labor Thomas Perez sets out broad ideas, asking for revision with an eye to today”™s labor market and American workplace. The President”™s public statements indicate a desire to improve the lot of lower-paid executives who may be in charge of coworkers in a service industry, like a fast food chain or a lawn service. My guess is that there also will be tougher limits on how much “rank and file” type work can be performed by an individual dubbed a “working supervisor” to be eligible for the executive exemption.

Interestingly, I have found that employers tend to get into trouble with the existing regulations by disregarding rules when a salaried employee works less than the full 40 hours in a workweek. Employers seem to understand the “no overtime for-extra-hours” part of the salary test. They have trouble with the rule that an exempt employee working fewer than the regular number of fulltime hours cannot get his or her salary docked.

For now, the U.S. Department of Labor must research the President”™s ideas, propose new regulations, publish them for public comment, collect and review those comments and revise the draft. This will take time, many months for sure.

Nevertheless, I expect we will see some tightening of the exemptions that will require higher payrolls or structural job modifications, or both, for Connecticut employers at some point over the next 12 to 24 months.

At the moment, it is too soon to predict if new regulations will change the “professional” white collar exemption and require law firms and accounting firms, for example, to pay overtime to those new, right-out-of-school employees working 60 hours or more as they earn their proverbial stripes.

Margaret M. Sheahan is an attorney with Stratford-based Mitchell & Sheahan P.C., a law firm that primarily handles employment-related legal matters. She can be reached at mitchellandsheahan.com or 203-873-0240.