Business Forum: Overtime changes on the horizon

  • Article by: JOSEPH SCHMITT
  • Updated: May 4, 2014 - 1:55 PM

The president’s directive to streamline labor rules may impose significant burdens on Minnesota employers.

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Workers at a Boston McDonald’s protested in March over the denial of overtime pay. They said they were denied money they were owed.

Photo: Steven Senne , Associated Press

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Significant changes to federal overtime requirements are on the horizon for Minnesota employers and employees. President Obama’s recent directive to the Department of Labor to propose revisions to “modernize and streamline” existing overtime regulations will likely increase the number of Minnesota employees eligible for overtime, and may impose significant burdens on employers.

Although the Labor Department is still evaluating what regulatory changes will be made, it is very likely that it will raise the weekly wage that employees must receive to qualify under the so-called “white collar” exemptions to the Fair Labor Standards Act’s overtime requirement. Currently, executive, administrative and professional employees may be paid a salary without receiving overtime, but only if the employee’s weekly salary is at least $455, or a yearly salary of $23,660.

The weekly salary figure has not changed in 10 years, and it is clear that the Labor Department will propose an increase. What is less clear is the amount that the department will propose for a new minimum figure. The department will undoubtedly be concerned that any minimum figure must be adequate for such coastal cities as New York and San Francisco. However, setting a minimum amount for those ­cities could result in a weekly salary that is unworkable for some Minnesota employers, particularly those operating outside of the Twin Cities metropolitan area. We must hope that the Labor Department considers the interests of Brainerd as well as Boston, and Mankato as well as Manhattan.

In addition to the weekly salary change, the White House’s directive also appears to suggest more substantive revisions to the exemptions under the Fair Labor Standards Act. The White House specifically directed the Labor Department to consider how to “simplify the regulations to make them easier for both workers and businesses to understand and apply.”

While this certainly is a laudable goal, it is extraordinarily difficult to create a simple or clear test for who is and who is not an exempt professional. Indeed, the 2004 regulations promulgated by the Bush administration — which were also designed to simplify the exemptions — arguably made them more complicated.

Commentators believe that this “simplification” directive actually is driving toward the adoption of a percentage requirement for exempt tasks. The current regulations merely hold that employees would qualify for the exemption if their “primary” duties are exempt duties. Thus, an employee who spends less than 50 percent of his or her time performing exempt tasks may still be exempt if those tasks represent his or her most-important duty. However, some states, most notably California, have adopted a requirement that the employee must spend more than half of his or her time performing exempt duties to qualify for the exemption.

If adopted at the ­federal level, a strict percentage requirement such as California’s would be a very significant change for Minnesota employers and employees. Minnesota employers would be required to undertake a comprehensive reassessment of the exempt status of all of their exempt administrative, executive and professional employees.

Many California employers conduct “time and motion” studies to determine what percentage of an employee’s time is spent in exempt duties; Minnesota employers may need to perform likewise for their in-state employees. Such studies are time-consuming and expensive, and would likely impose a significant burden on Minnesota employers.

This would also mean that many more Minnesota employees would be classified as nonexempt. Some Minnesota employers would likely decide that their employees do not spend half of their time performing exempt duties; other employers would decide not to take the risk of litigation. As a result, more Minnesota employees would be paid by the hour under this standard.

And, of course, the percentage test makes it easier for employees to commence litigation arguing that they were improperly denied overtime. California has long been a hotbed for wage-and-hour litigation, in part because of its percentage test requirement. National adoption of that standard would result in a significant increase in wage-and-hour litigation in jurisdictions such as Minnesota.

What’s the next step? The Labor Department will propose changes to the regulations and invite public comments. Once the comment period has expired, the department will publish final regulations. Minnesota employers and employees will be watching. But it’s already clear that significant changes are on the horizon.

About the author: Joseph Schmitt is a shareholder in the labor and employment group at Nilan Johnson Lewis PA and focuses his practice on representing management. His e-mail at jschmitt@nilanjohnson.com.

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