On March 13, President Obama directed the U.S. Department of Labor (DOL) to come up with a way to update overtime requirements pay rules to reflect the "changing nature of the American workplace" and to make them more "in keeping with the intention of the Fair Labor Standards Act."
The move has the potential to affect millions of employers and workers. Fortunately for employers, the revisions to existing overtime requirements will not occur overnight. It may take many months, and the changes may face legal challenges along the way. The President said he would take input from employers into consideration as new regulations are being developed. What that means is not known at this point.
Bottom line: It is probable that some employees currently ineligible for overtime pay requirements by being treated as falling within the broad "executive, administrative and professional" employee exemption category, ultimately will have to be paid more.
Of course, these employees may only have to be paid more if their employers don't cap their weekly hours at 40. It will also depend on how the ultimate regulations are written.
If you haven't been paying close attention to overtime pay rules lately, now is a good time to start, with support from your accounting professionals.
President Obama's latest charge to the DOL comes on the heels of his directive raising the minimum hourly wage for employees who work for private employers under new U.S. government contracts. Those employees will be paid $10.10 per hour, up from today's federal minimum wage of $7.25 per hour.
Labor Department Standards for "White Collar" Overtime Exemption
The DOL's Fact Sheet #17C explains the standards for exemption for overtime pay for "executive, administrative and professional" employees:
1. The employee must be compensated on a salary or fee basis (as defined in the regs) at a rate not less than $455 per week.
2. The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers.
3. The employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
The phrase "primary duty" is crucial, so the DOL gives some precision to its meaning in that fact sheet. It means: "the principal, main, major or most important duty that the employee performs. Determination of an employee's primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee's job as a whole."
Similarly, the phrase "directly related to the management or general business operations" means, among other things, that the work must be "directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment."
The DOL offers the following examples of jobs that would fall under the exemption: "Work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities."
More key definitions are given in Fact Sheet #17C, including what it means to exercise discretion and independent judgment. Also, a broader explanation of other categories of employees exempt from overtime pay, including "certain skilled computer professionals," are given on this page of the DOL's website. Your accounting professional or legal counsel can provide more precise definitions as they pertain to your organization.
A Reprint from the BeachFleischman Newsletter, March 20, 2014
BeachFleischman CPAs is based in Arizona and has offices in Phoenix and Tucson (Headquarters). One of Arizona’s largest locally-owned CPA firms and a “Top 200″ largest CPA firm in the U.S. We serve over 6,000 private enterprises, not-for-profit organizations and entrepreneurs in the US and Mexico, and provide accounting, assurance, tax and advisory services. To contact them in Tucson call (520) 321-4600 and in Phoenix at (602) 265-7011.