President Obama has proposed a new standard for employee overtime. Currently, the Federal Fair Labor Standards Act (FLSA) exempts employees who are performing managerial duties or any professional worker receiving $455 a week from overtime. This means an employee earning slightly less than $25,000 per year could work additional hours and not be paid for those extra hours. Obama wants to allow a new policy for professional employees working more than forty hours in a workweek.

The Details

In 1938, The Federal Fair Labor Standards Act (FLSA) was passed by Congress and signed into law by President Roosevelt to set a minimum wage for employees. This Act required that employees be paid time-and-a-half for all hours worked in excess of forty hours in a given work week. The FLSA also exempted special employees from this overtime requirement under Section 13(a)(1) and Section 13(a)(17). There are two criteria that allow businesses to refrain from paying employees for additional hours. To be exempt from payment of overtime, an employee must fall into these two factors:

(1) The salary the employee makes must be at least $455 per week (or an annual salary in excess of $23,600); and

(2) The salaried employee’s job duties must fall within certain categories, including, most commonly, executive, administrative and professional.

The list of managers that qualify for an exemption from the overtime requirement have been lengthened overtime. The type of managerial employee are listed as executive, administrative, professional, computer-related occupations, and outside sales.

Therefore, if a non-managerial employee earns less than $455 per week, that employee is entitled to overtime while managerial positions are not. President Obama signed a memorandum on March 13, 2014 that began the procedure of modernizing the Fair Labor Standards Act’s overtime regulations. There has been no set figure on how high it will raise the salary limit for executive workers; numbers ranging from $550 to over $900 have been rumored.

What does the change mean to Small Business?

Any increase in wages has consequences. Many business owners are worried that it may cause a lack of incentive for lower-level managers to excel and earn a promotion, and small businesses will have to compensate many managerial employees working more than forty hours for overtime, which could mean cutting lower-level employees to make up for the difference in revenue, costing tens of thousands (if not more) jobs nationwide. The plan by Obama is to have the new overtime laws become applicable in 2015.