A major change to overtime rule will be coming soon from the Federal Government. In an article written by Lisa Nagele-Piazza, she reviews the potential changes to be expected and when to anticipate these changes.
The U.S. Department of Labor (DOL) intends to issue a Notice of Proposed Rulemaking to announce a new proposed salary threshold for the Fair Labor Standard Act’s (FLSA’s) white-collar exemption from overtime pay—but likely not until January 2019.
A halted 2016 rule would have doubled the salary threshold, but the new proposal is expected to be less sweeping. The new rule will likely be more accepted by the business community, said Eric Magnus, an attorney with Jackson Lewis in Atlanta.
The DOL said its decision will be informed by the comments the department received from its July 2017 request for information that solicited input from the public.
“The department will consider the information it received through the request for information, and it is my hope that there will be a recognition that asking employers to make changes to compensation levels is a complicated process,” said Lee Schreter, an attorney with Littler in Atlanta. She hopes the DOL will give employers plenty of notice so that they have time to comply.
The Notice of Proposed Rulemaking was expected by October 2018, but the department recently said it will issue the proposal by January 2019. “Proposed regulatory actions are often delayed, so it would not be shocking for additional delay to occur,” said Jennifer Betts, an attorney with Ogletree Deakins in Pittsburgh.
“More delays are always possible, but I am hoping that DOL will meet that date so we can see a final rule early in 2020,” said Tammy McCutchen, an attorney with Littler in Washington, D.C.
So what will the new proposal look like? It’s hard to predict. It would be difficult for employers to prepare extensively right now, given how uncertain things are, Betts said. However, it would be wise over the next few months for employers to identify any employees who are classified as exempt but are paid below the $40,000 mark. “These are the individuals who will most likely be impacted by any change,” she said.
Because the new proposed salary threshold will be lower than the Obama administration’s, there will be a narrower group of jobs affected, Magnus noted.
Under the FLSA, employees must be paid at least 1.5 times their regular rate for any hours worked beyond 40 in a week, unless they are properly classified as exempt. Among other requirements, the FLSA’s administrative, executive and professional (white-collar) exemptions set a minimum salary that employees must earn.
President Barack Obama’s administration finalized a rule in 2016 that would have raised the threshold to $47,476 from $23,660. However, a federal judge blocked the rule from taking effect and ultimately held that it was invalid. The decision left intact the $23,660 threshold, which has been in effect since 2004. An appeal of the permanent injunction is stayed but is still pending in the 5th U.S. Circuit Court of Appeals.
The $23,660 threshold “certainly needs to be updated,” Secretary of Labor Alexander Acosta said at the American Bar Association’s 11th Annual Labor and Employment Law Conference last year. But the $47,476 threshold “created a shock to the system, so we put out a request for information and are looking at the comments that were submitted,” he said.
The Society for Human Resource Management supports an increase to the exempt salary threshold but has said that the Obama administration’s rule raises it by too much, too fast. The 2016 rule “would have presented particular challenges for employers whose salaries tend to be lower, such as small employers, nonprofits, employers in certain industries and employers in certain geographic regions of the country that tend to have lower costs of living,” according to SHRM.
The Society also opposes automatic increases to the salary threshold, which were a part of the 2016 rule. “Such increases ignore economic variations of industry and location and make it hard for HR to manage merit increases for employees near the salary level,” SHRM said.
The DOL also announced that it will “clarify, update, and define regular rate requirements” under the FLSA. A Notice of Proposed Rulemaking is expected on this issue by September, but Magnus noted that it is unclear at this point what the proposal will entail.
Opportunity to Comment
Once the Notice of Proposed Rulemaking is issued, the public will be able to submit comments about the proposal. Employers can make their views are known by providing comments either directly or through their professional associations. “Telling the department about the dollars and cents impact is important,” Schreter said.
Acosta has made a point to have “listening sessions” with many different stakeholders, including employees and employers. Hopefully the DOL will weigh everyone’s input and arrive at something that is workable for employers and also recognizes a need to raise the salary threshold to some extent, Schreter added.
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