Professional Service Agreement

Obama Signs Executive Order Expanding Overtime Application to More Salaried Employees

March 14, 2014

As expected, on March 13, 2014 President Obama issued a Presidential Memorandum to the Secretary of Labor that will have major implications for all employers – large and small, public and private. President Obama's stated goal is to "increase dramatically the number of employees who are paid extra for overtime work". This will be accomplished by narrowing and redefining the requirements of the "white collar exemptions" for salaried executive, administrative, professional and computer positions.

While the memorandum provides little detail about the changes to come, SESCO predicts the Department of Labor will raise the current minimum guarantee salary threshold of $455 per week ($23,660 annually), to as much as $1,000 per week ($52,000 annually). Thus, for a position to be eligible for an overtime exemption, he/she must be guaranteed at least $52,000 per year. This annual salary is more than double the current requirements and will instantly require employers to pay overtime for those making less than the expected $52,000.

Other changes to the exempt job criteria are likely. Currently, an employee's primary duty is key to determining exemption status. A new rule could require that employees perform a minimum percentage of exempt work before they can be exempt from overtime pay.

The directive to the Department of Labor contains no specific timeline, but there is speculation that the Department will publish a Notice of Proposed Rulemaking by early summer. Thereafter, SESCO expects that these new regulations will take effect in 2015.

Obviously these new overtime requirements will cause labor costs to explode, which of course is any employer's largest single controllable cost-the difference between a profit or loss. SESCO has expertise to assist clients in FLSA compliance with the new regulation and consulting in matters of staffing, scheduling and compensation practices. Employers are urged to start now in planning and system development in order to be ready for the enactment of the rules in 2015.