The U.S. Department of Labor’s (DOL) proposed rule greatly expanding the number of workers eligible for overtime pay has been submitted to the Office of Management and Budget (OMB) for review, a necessary step before the rule can be finalized.
The new rule is expected to make nearly five million workers lose their exempt status under the Fair Labor Standards Act (FLSA), according to the DOL, meaning they would be eligible for overtime pay at no less than 1½ times their normal rate of pay for all hours worked over 40 in a workweek.
That change may be coming very soon. Judith E. Kramer, an attorney with Fortney & Scott LLC in Washington, D.C., said OMB review typically takes 30, 60, or 90 days, but she expects this review to be on the shorter end of the scale so the regulations can go out quickly, possibly in April or May. The proposed rule was sent to the OMB’s Office of Information and Regulatory Affairs on March 14.
Under the current rule, employees are exempt from the FLSA if they (1) are paid a predetermined fixed salary of at least $455 a week ($23,660 a year) and (2) perform certain executive, administrative, professional, computer, or outside sales duties. The proposed rule would more than double the salary requirement, guaranteeing overtime pay to most salaried white-collar workers earning less than an estimated $970 a week ($50,440 a year).
As proposed, the rule would set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers in the United States. The rule would provide for automatic updates of the salary threshold based on inflation or wage growth over time.
Changes to duties test?
Kramer expects the salary threshold in the final rule to be close to the threshold in the proposed rule, but the “bigger unknown” is whether the duties test will change. Although the proposed rule didn’t call for changes to the duties test, the DOL requested comments on possible changes.
One possibility is to adopt the test California uses. Under that test, an exempt employee must spend more than 50 percent of his time on exempt duties. The current federal rule requires that in addition to meeting the salary test, exempt employees must have as their primary duty executive, administrative, professional, outside sales, or computer work. It has “no bright-line test” on the amount of time a worker can spend on nonexempt duties, Kramer said.
Just what the rule will say won’t be known until it is finalized, but “the better guess is [the DOL] will change the duties test and it will look like the California test,” Kramer said.
Quick implementation
The target release date for the new rule had been July. Why the accelerated schedule? Kara Shea, an attorney with Butler Snow LLP in Nashville, Tennessee, said the rationale she heard is that it recently became apparent that proposed rules submitted after May 16 will face additional hurdles to final approval because the Congressional Review Act allows Congress to disapprove “major” final rules promulgated by federal agencies such as the DOL.
“Because of the huge economic impact of the proposed overtime changes, the new DOL rules would qualify as ‘major’ and . . . would be subject to congressional review pursuant to the Act,” Shea said. Under the Act, Congress would have 60 legislative session days to pass a joint resolution to invalidate the new DOL rule. However, if it is submitted to Congress with less than 60 session days remaining on the legislative calendar, the issue is postponed until the next Congress is in session, at which time a new 60-day period begins.
Shea explained that the president can veto a joint resolution disapproving the rule, and the veto could be overridden by a two-thirds vote in Congress. “So it’s all in the timing, and the fate of the rule will depend on who is in charge in . . . Congress and in the executive branch during the review period,” she said.
Need to learn more? With the DOL’s newly proposed overtime exemption rules close to becoming final, “exempt vs. nonexempt” is, understandably, one of the hottest HR issues today. Once the new rules are in effect, any one of many possible management mistakes could put your exempt employees’ status in jeopardy, making them entitled to overtime compensation and creating a huge liability for your organization. You may also face fines for FLSA violations. Join us on April 28 for the BLR webinar Overtime Exemption at Risk: Practical Strategies for Managing Exempt Employees in Compliance with the New FLSA will show you the trouble spots to watch for—and the proactive strategies for minimizing your legal risks. For more information, go to http://store.hrhero.com/overtime-exemption-042816