Executive Order to Increase Overtime Pay

Author: Maribeth Deavers, Esq.
Author: Nathan Hurst

President Obama, in his State of the Union, promised this year to be a “year of action” – a year of action that appears will negatively impact employers, particularly small and medium sized businesses. In his quest to accomplish this goal, Obama issued an executive order for a minimum wage increase for employees of federal contractors to over $10 an hour, spread over three years. Now, Obama issued an executive memorandum to the Department of Labor asking they revamp the regulations governing overtime exemptions thereby increasing the number of people who qualify for overtime. The target of this increase are the white collar exemptions under the Fair Labor Standards Act, which requires employers to pay overtime to workers except for certain management, administrative and professional employees if they earn more than $455 per week. Originally, the threshold was set at $250 per week in 1975. However, the Bush administration increased it to $455 in 2004. That increase required employers to pay overtime to millions of workers that were not originally entitled to overtime pay. The number of employees affected by Obama’s executive order will depend on the level of the increase, and is therefore unknown. For example, according to Ross Eisenbrey, VP of the liberal Economic Policy institute, increasing the aforementioned threshold to $984 per week would result in an additional five to ten million people receiving overtime – a potentially fatal blow to employers.

Critics opine that this negative impact on employers will force them to make necessary adjustments. Potential ways to cover the increase in costs include: careful scheduling to avoid overtime costs, stricter observation of employees, staff reductions, hiring freezes, and importantly passing the increased costs on to the consumer.

It is important to note that this change will not happen immediately. The Department of Labor (DOL) has specific procedures to make the above-mentioned changes, which will delay the process. Specifically, after the President’s order, the DOL has to create the necessary regulations to implement the law. The new regulations must be in accordance with the Administration Procedure Act (APA), which requires a 30 day period for objections. This change is going to impact employers everywhere. Stay tuned and feel free to contact Isaac Wiles’ labor and employment division if you have any questions.