President Obama Signs Executive Order Regarding Overtime Pay

On Thursday, March 13, President Barack Obama signed an Executive Order instructing the United States Department of Labor to devise new regulations that would make more employees eligible for overtime pay. Although the details of the new regulations have yet to be formulated or implemented, the President’s action is likely to increase the wages and rights of workers in Indiana and throughout the country.

The main area of the Fair Labor Standards Act that has widely been assumed to be in play as a result of the Executive Order is the salary basis exemption. The salary basis exemption allows employers to pay eligible employees a fixed salary (and no overtime) so long as that salary is at least $455.00/week. One of the reasons the salary basis is thought to be in play is that a weekly salary of $455.00 equates to an annual salary of $23,660.00. That annual salary is below the 2014 poverty guidelines for a family of four according to the United States Department of Health and Human Services. Additionally, for the many employees who are being paid that while working 60+ hours per week, the net result is they are being paid below the $7.25/hour minimum wage when overtime premiums are factored in.

Another potential area of change that has been less-widely reported but could be far more meaningful to employees is the scope of the three main FLSA exemptions – administrative, professional, and managerial. By way of example, one of the current requirements of the managerial exemption is that an employee must “customarily and regularly direct[] the work of two or more other employees.” By changing a word here or there, the Department of Labor could eliminate the ability of employers to pay millions of workers fixed salaries without overtime. If the words “customarily and regularly” were to be changed to “exclusively,” any “managerial” employee who also performs non-managerial work (i.e. fills in on an assembly line when employees are absent, on break, or at lunch) would not be exempt from being paid overtime by their employers. Or the Department of Labor could simply change the word “two” to “five” or “ten” and instantly render many Assistant Managers and Managers eligible for overtime pay for all hours worked in excess of forty. When one considers how many small business throughout the country do not have more than 3-4 employees working during most times of the day, the impact this one word change could have would be enormous.

It remains to be seen in what exact ways this Executive Order change the landscape for workers in this country but it seems certain that the Department of Labor will be expanding the scope of the FLSA to guarantee overtime wages to more employees and that is a positive development for employees around Indiana and the entire country.