FLSA Guru Provides Insight on Proposed Overtime Changes

Do the new proposed overtime regulations submitted in July have your HR department aflutter? BLR’s Senior Legal Editor, Susan Schoenfeld, got the scoop at the Society for Human Resource Management’s (SHRM) conference from an expert speaker and helps to calm HR’s nerves with some solid insight.

What does Tammy McCutchen, former administrator at the U.S. Department of Labor’s Wage and Hour Division (DOL), have to say about the proposed Fair Labor Standards Act (FLSA) regulations? A lot, as it turns out.

Speaking at the Society for Human Resource Management’s (SHRM’s) annual conference, McCutchen bravely plowed through the approximately 300 pages of the proposed rule to provide valuable information to conference attendees—all less than 72 hours after the rule was released to the public.

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McCutchen briefly outlined some of the most significant proposed changes to the regulations. The proposed rule would:

• Set the minimum salary required for exemption at the 40th percentile of weekly earnings for full-time, salaried workers. Currently, based on 2013 data from the Bureau of Labor Statistics (BLS), this would amount to a minimum salary of $921 per week or $47,892 annually. However, the DOL expects that the 40th percentile will increase to $970 per week or $50,440 annually by the time a Final Rule is effective in 2016.
• Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually).
• Establish a mechanism for automatically updating the salary levels annually based either on the percentile or inflation.

One result, says McCutchen, will be an immediate and large-scale reclassification of employees from exempt to nonexempt resulting in many, many more employees becoming eligible for overtime. The industry sectors most likely to be dramatically impacted include retail, hospitality, service, and the public employment sector.

The Biggest Surprise

Surprisingly, says McCutchen, the DOL is not proposing specific regulatory changes to the FLSA’s duties test at this time. Rather, the DOL says it only “seek[s] to determine whether, in light of our salary level proposal, changes to the duties tests are also warranted” and “invites comments on whether adjustments to the duties tests are necessary, particularly in light of the proposed change in the salary level test.”

But wait—even though the DOL is not proposing any specific changes to the duties test, it may still be planning on changing the test, says McCutchen. She believes that the DOL has tipped its hand on upcoming changes in its requests for comments on the test. Specifically, in the proposed rule the DOL asks the regulated community to comment on questions such as:

• What, if any, changes should be made to the duties tests?
• Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption?
• If so, what should that minimum amount be?

The DOL also asks for comments on whether the final rule should look to the state of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model, or whether there is some other threshold (less than 50 percent) that might be “a better indicator of the realities of the workplace today.”

The DOL’s questions on the long and short test also concern McCutchen. In the proposed rule, the DOL asks for comments on whether the single standard duties test for each exemption category appropriately distinguishes between exempt and nonexempt employees and whether it should reconsider its decision to eliminate the long/short duties tests structure.

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Finally, McCutchen sees an indication that the duties test for the FLSA’s executive exemption may be changing. She points to the DOL’s question of whether the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) is working appropriately or, as the DOL asks, does it need to be modified to avoid sweeping nonexempt employees into the exemption?

Alternatively, DOL asks whether there should there be a limit on the amount of nonexempt work and to what extent exempt lower-level executive employees perform nonexempt work.

In tomorrow’s Advisor, we learn more from Susan Schoenfeld about some legal issues surrounding the proposed overtime rules as well as what the final version might include.  We’ll also be introducing BLR’s comprehensive guide, Wage & Hour Combo Package.