If you have contractors who are currently exempt from overtime, they may not be for long.  

President Obama has issued a memorandum asking the Department of Labor (DOL) to update the regulations surrounding who can legally be denied overtime in an attempt to reduce the number of people in that group. 

Under the Fair Labor Standards Act (FLSA), most American workers must be paid at a rate 1.5 times their regular pay rate for any hours worked over 40 in a workweek. The law does allow for workers in executive, administrative, and professional positions to be considered exempt from overtime if they meet the "minimum salary" and "duties" tests, as defined by the DOL. These are known as the "white collar exemptions."

President Obama stated in his memorandum to Secretary of Labor Tom Perez, who overseas the DOL, that the white collar exemptions "have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to minimum wage." Therefore, he asked the DOL to:

1. "Modernize and streamline" the overtime regulations to make them more consistent with the original intent of the FLSA
2. Address the changes in the modern workforce
3. Make them easier for both employers and workers to understand

There were no specifics in the memorandum.  However, it is certain that, under this presidential decree, the DOL will increase the minimum salary requirement.  According to a Fact Sheet released by the White House, this minimum has not kept up with inflation and has only been changed twice in 40 years. Currently, the minimum salary requirement to qualify as exempt is $455 per week, which is below the poverty level for a worker supporting a family of four. Someone paid at that minimum rate could even fall below minimum wage if they had to work 65 or more hours per week.  The Fact Sheet also points out that, due to that salary threshold, only 12% of Americans qualify for overtime, compared with 65% in 1975. Experts expect the salary threshold to be increased to as high as $1,000 per week. 

The "duties test" are also expected to be changed.  Each exemption has standards for what constitutes an exempt employee based on the duties they perform. Those classified under the Executive Exemption, for example, must have a primary duty of managing the enterprise or a department or subdivision, and they must regularly direct the work of at least two other full-time employees. Those duties tests will likely become more specific, possibly dictating an exact percent of time a worker must spend doing certain duties to qualify.

Employers and recruiters will be impacted by these changes. Even if you outsource the employment of your contractors to a back-office service, there are some action items:

1. Keep up-to-date on the issue. It may take awhile for the changes to take place, so it is important that you don't let it slip from your radar in the meantime.
2. Communicate with clients. If you have exempt contractors placed at any of your client companies, make sure your clients are aware of this. When the changes come, it may require some contractors' salaries to be increased, or they may have to be moved to non-exempt.  Both scenarios could increase your clients' costs. They will probably appreciate a heads up because they will have to determine how the changes affect their direct staff as well.
3. Following current laws. If you have contractors currently classified as exempt, you of course want to make sure they qualify under the DOL's current regulations. But it's more than just the federal laws.  Some states, such as California and New York, have their own regulations. For instance, in California, the salary of an exempt worker can be no less than twice the minimum wage for a full-time employee.  The minimum is currently $640 but will increase to $800 in 2016.

The DOL is expected to release proposed regulations as early as this summer, so we should have a better picture then of what they will look like once they are updated. In the meantime, we'll be sure to keep you posted.

This article is for informational purposes only and should not be considered legal advice.

Debbie Fledderjohann is the President of Top Echelon Contracting, Inc.