The Department of Labor’s “Extremist” Change to Overtime Regulations
I am not a very “political” person. Maybe that is why it is hard for me to understand the appeal of the “extreme” rhetoric by the presidential candidates in this election cycle. There is talk of a free college education for all; deportation of all illegal immigrants; defunding Planned Parenthood; among many, many other “extreme” positions. But even if I don’t understand the appeal of these positions, I am not surprised that they have been adopted by the candidates.
I can only wonder whether U.S. workers in 1938 felt their president was likewise an “extremist.” After a landslide electoral victory in 1932, in the depths of the Great Depression, President Franklin D. Roosevelt along with a Democratic House and Senate, vowed to improve the lives of American workers. "A self-supporting and self-respecting democracy can plead no justification for the existence of child labor, no economic reason for chiseling worker's wages or stretching workers' hours." [i] It took, a bitter fight in the House of Representatives, a threat to pack the Supreme Court, and a severe reduction to the benefits offered before FDR was able to garner enough support for the Fair Labor Standards Act, (“FLSA”) which was finally passed in 1938. Guaranteeing an American worker 25 cents an hour and overtime after 44 hours a week must have seemed radical, revolutionary, and extreme to many in 1938. Of course, over time, extreme positions become mainstream, even if they remain divisive.
For the purposes of this article, I am not going to address minimum wage laws and regulations,[ii] only the overtime exemption rules promulgated by the United States Department of Labor (“DOL”).
The Overtime Exemption
After years of adjustment the once “extreme” overtime exemption rule is now commonplace. Overtime laws have always been intended to benefit “blue collar” workers while exempting “white collar” workers from overtime. The DOL regulations that allow the government to make this distinction remain a source of much political strife. For our present purposes, the regulations, found at 29 C.F.R. part 541, allow “white collar” workers exemption from the overtime requirement. These workers include administrative, executive, and professional employees.
Currently, in order to be considered a “white collar” worker, an employee must meet three regulatory tests. According to the Department of Labor, “(1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.” [iii] These three tests are known as the salary basis test, the salary level test, and the duties test.
The Proposed Rule
In the most “extreme” adjustment since the passing of the FLSA, the DOL, at the direction of President Obama, proposed new regulations specifically surrounding the salary level test in July of 2015. Today, in general, if an employee makes a salary of at least $455 per week [iv] and performs the regulatory duties of an administrative, executive, or professional worker, the employee need not be paid overtime. That means that an employee that makes $23,660 per year could potentially fall under the exemption and need not be paid overtime. Under the proposed rules, the salary level test will be raised to an amount equal to the 40th percentile of earnings for full-time salaried workers ($921 per week, or $47,892 annually for a full-year worker, in 2013). In the first quarter of 2015, the 40th percentile of weekly earnings was $951, which translates into $49,452 for a full-year worker. Assuming a two percent growth between the first quarter of 2015 and the first quarter of 2016, the 40th percentile weekly wage in the final rule could be $970, or $50,440 for a full-year worker.
The proposed rules are tied to an ever-changing standard and if adopted, employers will need to review the positions they consider exempt annually. This revision to the exemption rules is extremely significant, as it was intended to be. “An exemption from overtime eligibility originally meant for highly-compensated, white-collar employees now applies to workers earning as little as $23,660 a year — below the poverty line for a family of four.[v]” “In 1975, 62 percent of full-time salaried workers were eligible for overtime pay; but today, only 8 percent of full-time salaried workers fall below the salary threshold and are automatically eligible for overtime pay.” Id. The DOL acknowledges that the proposed rule would allow over 5 million workers access to overtime. Id. The DOL published the final rule in July 2015, and the 60-day comment period ended in September 2015. However, the DOL received more than 270,000 comments in response to the final rule.
The Current Climate
According to a Law360 article published in January 2016, DOL Solicitor M. Patricia Smith told attorneys at a New York State Bar Association meeting that the final rules would likely be published in July 2016.[vi] Assuming an effective date 60 days after release of the final rules (as is common), a July publish date would mean that employers must comply with the final rule by September 2016. The DOL's current regulatory agenda for the final rule supports this statement, as it lists an anticipated final rule date of “7/00/2016.” [vii] The Huffington Post reported in January 2016 that in response to the comments, it is likely that the revised final rule will not climb to the $50,000 mark—but would rather settle around $42,000, which would cover 35% of salaried workers.[viii] On February 12, 2016, the House Education and Workforce Committee renewed its inquiry into the DOL’s outreach efforts, requesting that the DOL provide evidence of meetings, telephone calls, and other communications demonstrating the DOL’s outreach activities. This could signal an attempt by some members of Congress to somehow delay or affect the issuance and implementation of the final rule.
Regardless of the political climate, it appears that the DOL will raise the salary level test in 2016. Employers should review any positions that fall into the $40,000 to $50,000 range and make decisions now whether to raise salaries, hire additional workers, or implement stricter overtime policies. Stay tuned to see whether the final rule will be published in July 2016, but be ready for this “extreme” change nonetheless.
[ii] The political environment of the minimum wage could be the subject of its own article.
[iv] Last updated in 2004, 12 years ago.