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An Increase in the Wage Exemption for Overtime Pay Could Lead to Future Benefits for Both Companies and Employees

By of Aceto, Bonner & Cole, PC. posted in Business & Commercial Law on Monday, August 15, 2016.

On December 1, 2016, more than 4.2 Million executive, administrative, and professional employees will become eligible for overtime pay for all hours worked beyond 40 hours a week. In May, the Obama Administration announced its plan to increase the wage exemption from overtime pay in the Fair Labor Standards Act (FLSA) from $23,660 to $47,476 in an effort to raise the number of full time white collar workers who can receive time-and-a-half wages. The rule, which hasn't been updated in over a decade, is expected to raise the percentage of workers who qualify for overtime pay from the mere 7% that it is today, to nearly 40% of white collar workers as a result of the changes introduced by the Obama Administration.

The update is a vital step towards restoring the initial purpose of the exemption, which was meant to exempt highly paid executives from overtime, but has instead overwhelmingly impacted the middle class, decreasing the number of those eligible for time-and-a-half pay from 62% in 1975 to just 7% today. To avoid a repeat of the steady decline in eligibility the exemption saw from 1975 to today, the pay threshold will be automatically adjusted every three years, climbing from $47,476 in 2016 to $51,000 by the year 2020. Additionally, the new rule will also clarify what duties white collar workers must perform to be exempt from overtime pay, potentially making millions of more workers eligible.

This raise of the salary threshold, which applies to both hourly and salaried workers, is predicted to benefit workers between the ages of 16 to 34 the most. Workers between the ages of 16 to 34 account for 28% of the salaried workforce, but compose 36% of the workers who will benefit from this increase in the pay threshold, giving much needed relief to an age group that has struggled to get ahead in the post-recession job market.

Overall, as companies adjust to this new rule, the increased pay threshold will not only reward white collar employees for putting in extra hours at work, but also has the potential to improve work-life balance, and worker health and productivity, while acting as a much needed boost for millennials.