Changes to overtime exemption rule still unknown

05/22/2014 7:07 AM

08/08/2014 10:24 AM

Employers have likely heard that President Obama directed Labor Secretary Thomas Perez to update the regulatory criteria for employees to qualify as exempt from overtime.

Although the regulations may eventually change, the Department of Labor will need to follow the rule-making process, which usually takes more than a year to complete.

The exact nature of the revisions is not yet known, although the DOL is expected to increase the minimum required salary. However, the agency could take other actions such as changing the definition of “primary duty” or revising the “concurrent duties” concept.

Primary duty

The Obama administration expressed concern regarding how exemptions are applied in retail and service establishments. For an employee to qualify as exempt, the primary duty must consist of exempt work. The current regulations do not require employees to spend more than half of their working hours performing exempt duties. Some exempt employees spend quite a bit of time performing nonexempt work, particularly in retail and service establishments.

The Fair Labor Standards Act says that such employees can be exempt, even if they perform nonexempt tasks, if less than 40 percent of the hours worked are devoted to nonexempt duties such as running a cash register or cleaning the store. However, supervisors can perform exempt duties while concurrently engaged in other tasks.

Concurrent duties

The concurrent duties regulation provides that supervisors can perform exempt duties while simultaneously engaged in other tasks. For instance, a supervisor may direct the work of employees while serving customers or stocking shelves. Perez mentioned the case of Grace v. Family Dollar as an example of how courts have applied this concept too broadly. That case involved a retail manager who spent nearly all of her time performing nonexempt work. However, the court held that she was exempt because she concurrently managed the store and her employees while engaged in other duties.

A change to the concurrent duties rule, combined with a potential requirement to spend more than half the working time performing exempt duties, could have a significant impact on which employees qualify as exempt in retail and service establishments.

More enforcement

With all of the speculation about the potential regulatory changes, employers might have missed the fact that President Obama’s proposed budget requested an increase of more than $41 million for the Department of Labor’s Wage and Hour Division. The additional funding would be used to hire 300 new investigators. If these additional positions are approved, the enforcement staff would grow by about one-third. This would be on top of the 250 new investigators hired since 2009.

Over the past few years, the Wage and Hour Division settled an average of around 35,000 back pay claims each year, recovering more than $200 million per year. If the president’s proposed budget is accepted, these numbers are likely to increase.

Employers should verify that exempt employees are properly classified and actually meet the exemption criteria of federal law as well as any applicable state laws. Performing this validation will help ensure familiarity with the exemption criteria (and provide a foundation for better understanding any future changes), and also help protect the company from future litigation – something that may become more likely as enforcement starts ramping up.

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