Final FLSA Regs Loom

March 29, 2004 ( - The Department of Labor (DOL) hasn't revealed much about the content of its soon-to-be released final rules on overtime pay, but the final regulations are expected to reflect some changes from the original proposal.

>The final rules, expected to be published this week, are likely to raise the proposed salary threshold under which many white-collar workers would qualify for overtime pay, and it may give employers more time than the 30 days required under statute to implement the changes required under the new overtime rules, according to Reuters.

>Earlier this month, Wage and Hour Administrator Tammy D. McCutchen told attendees at the Society for Human Resource Management’s (SHRM) annual legislative conference that, “We’re going to be responding to most of the concerns you’ve heard about,” according to Reuters.  

Proposal Controversy

We can, perhaps, all agree that time is money, but exactly how much – and when that rate changes – lies at the heart of controversial changes to the Fair Labor Standards Act of 1938 (FLSA), changes that US Secretary of Labor Elaine Chao has said will go into effect on March 31.   Not that it has been a rush to judgment.   The Department of Labor made its initial proposal more than a year ago (see  White House Proposes Overtime Rules Overhaul ), and the odds of a further delay in the March 31 implementation date seem unlikely, despite recent attempts to thwart the effort with appropriations bill politicking in the Senate (see  Dems Tie Up Tax Bill in FLSA Protest ).  

Speaking at the SHRM conference, McCutchen said the DOL “could not sit by while low-wage employees were being denied overtime, six-figure earners were getting overtime, and employers were spending millions of dollars on litigation rather than on job creation,” according to Business & Legal Reports.  

While many opponents of the proposed regulations believe that employers will be able to more easily classify employees as exempt than currently, McCutchen noted that the “proposed changes to the executive exemption will actually make it more difficult than under current law for employees to qualify as exempt executives,” according to the BLR report.

In January,US Senator Arlen Specter (R – Pennsylvania) had asked Chao to delay the implementation of amendments to the FLSA regulations until September, citing the need for a “full airing of the issue” of reworking the overtime provisions of FLSAas reasons for the pushback.   Chao wasn’t buying it, though, telling the Senate Appropriations subcommittee on labor that “enough time has been spent on delays and studies of all sorts,” and telling Specter she is more concerned about the $2 billion dollars a year employers are spending on “needless litigation” brought by workers seeking overtime pay (see  Chao: FLSA Amendments Going Into Effect March 31 ).

Change in the Err

The proposed changes from the DOL would be the first comprehensive overhaul in more than 50 years of the white-collar exemption tests used to determine whether an employee must be paid overtime or is exempt from the minimum wage and overtime requirements of FLSA. Currently, there are three tests for whether or not an employee is ineligible for overtime:

  • the employee's level of pay,
  • whether or not the employee is a salaried or hourly worker,
  • whether or not the employee performs certain job duties.

As the rules stand, any employee making more than $155 a week (about $8,000/year) could be excluded from overtime, if they had a salary and a job description that fell into certain categories.   The proposed regulations as initially described would lift the cutoff to $425 a week (about $22,100/year).

The Labor Department says the move would add approximately 1.3 million lower-wage workers to the ranks of people eligible for overtime at a mean savings to the aggregate employer pool of $1.1 billion to $1.9 billion.   Critics, and there have been no shortage of them, balk at the figure the DOL has provided and say companies could be faced with costs of $870 million to $1.57 billion.

But critics say the real cost will be borne by workers.   The Economic Policy Institute (EPI), a liberal think tank, says that the proposal would cost 2.5 million salaried employees and 5.5 million hourly employees their right to overtime pay.   As an example, the EPI study says that "executives" ineligible for overtime, according to the old rules, were people who hired and fired workers, set wages, and assigned work. The new rules broaden the definition of "executives" to include any workers who can only recommend—but not carry out—the hiring or firing of the two employees they "supervise." 

According to the EPI study, which used Labor Department and General Accounting Office (GAO) data about worker pay and qualifications, the total effect of the three changes is to exclude at least 8.025 million workers from overtime.


According to Hewitt Associates' "Timely Topic Survey on Overtime Practices for Salaried Employees" report,nearly half (42%) of US companies have yet to study the potential impact, and for those that have gotten around to it,the examination has been limited for 36%, and only 21% have gone so far as to do a quick preliminary assessment of the potential impact of these changes. 

"This is disturbing given the fact that the proposed changes would require virtually all employers to review their existing job classifications and wage levels to ensure compliance with the new rules," said Tom Farmer, senior consultant for Hewitt.  

For some employers, the real cost may not come in adjusting employer overtime figures, but in rearranging how these figures are worked in.   "As a result of our findings, we expect some employers to adopt more extensive overtime practices for exempt employees under the DOL proposed rules," said Farmer. "This will be done to keep exempt workers 'whole' when their lower-paid peers do the same work but are overtime-eligible due to the increased salary test of $425 per week, compared to the current $155 per week. Some employers may also choose to "grandfather" entire job classifications that may otherwise change from nonexempt to exempt due to the more relaxed proposed duties tests."

The controversy surrounding the proposed changes was fanned when a January 6 report by the Associated Press claimed that the DOL was offering employers "tips" on how to evade overtime requirements.   However, the DOL notes that the report refers "to a single paragraph in the economic analysis section of the preamble to the Notice of Proposed Rulemaking published last March" a paragraph that the DOL said it was legally required to provide in outlining the actions and associated costs required of an employer to comply with the overtime requirements.   Despite the temporary furor, the possibilities outlined in the paragraph were fairly innocuous: cut workers' hourly wages and add the overtime to equal the original salary; raise salaries to the new $22,100 annual threshold, making them ineligible; or simply adhere to a 40-hour work week.  

An outline of the new rules is at .   A comparison of the new rules to existing standards is online at