On March 13, President Obama released a statement regarding updating and modernizing the overtime regulations under the Fair Labor Standards Act (FLSA). The FLSA requires that most workers covered by the act be paid at one and a half times their hourly wage for every hour worked over forty hour per week. A notable exception to this rule regards exempt employees, or those who are employed in an executive, professional, or administrative position, receive a salary, and are paid more than $455 per week. Confusion regarding the “white collar” exemption has led to increased litigation. President Obama proposes that the threshold be raised and the tests for determining who is an exempt employee be simplified.
The threshold has only been raised twice in the past forty years, once in 1975 and once in 2004. In 1975, the threshold was increased to $250 per week. At that point, 65% of salaried workers were under the threshold, and the threshold itself was equivalent to more than twice the poverty line for a family of four. The threshold was again increased in 2004 to current rate of $455 per week. At that point, 18% of salaried employees were under the threshold. Today, 12% of salaried employees fall under the threshold, which amounts to a salary below the poverty line for a family of four.
Currently the test for determining whether or not a worker is employed in an executive, professional, or administrative position is based on a number of factors including whether the worker’s primary duty is managing the enterprise, his or her control over the activities of other employees, and whether he or she can fire other employees, or at least have his or her opinion on the hiring and firing of other employees considered. This test can be difficult for both the employer and the worker to understand.
Unfortunately, many employers have exploited this loophole. Employers will categorize a worker as a manager, but in reality, this person’s day will involve only minimal amounts of time doing managerial work. For all intents and purposes, this person is in fact a regular employee and should be entitled to overtime pay. Because the employer argues that the worker is exempt, however, the employer is free to place the worker in situations that force them to work eighty hour weeks and not compensate the worker for hours worked past forty hours per week.
The FLSA was originally enacted to protect employees from exploitation, and continues to do so today. However, protections that were once strong under the FLSA are now almost meaningless. When the law was originally enacted, the majority of salaried employees covered by the law fell under the threshold and were thus entitled to overtime pay. The FLSA has not kept up with inflation. One can now be considered an exempt employee and still fall below the poverty line. This is not in keeping with the original intent of the law to protect those employees who did not have the power to protect themselves.
President Obama and the Department of Labor are correct in stating that it is time for the standards of the FLSA to be reviewed. The threshold should be raised and the test for the “white collar” exemption should be simplified for better clarity and to preserve the protection for employees that the law was originally created to protect.
Michael Kraemer is a partner with Kraemer, Manes & Associates, a law firm headquartered in Pittsburgh, serving all of Pennsylvania, with attorneys focusing on business law, employment law, litigation, and civil issues. For more information please visit www.lawkm.com.