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Labor Department will rethink lingering overtime rule

Joe Mont | July 26, 2017

The U.S. Department of Labor has published a Request for Information regarding a controversial overtime rule, a holdover from the Obama Administration.

“The RFI is an opportunity for the public to provide information that will aid the department in formulating a proposal to revise these regulations which define and delimit exemptions from the Fair Labor Standards Act’s minimum wage and overtime requirements for certain employees,” a July 25 statement from the agency says.

The rule in question stems from a memorandum President Barack Obama issued on March 23, 2014, directing the Secretary of Labor to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees.

The Department received more than 293,000 comments on the proposed rule, including comments from businesses and state governments, before publishing the final version of the rule on May 23, 2016.

The rule modified the Fair Labor Standards Act and its application to white-collar workers. Previously, only employees with an annual salary of more than $23,660 who performed certain duties could be required to work more than 40 hours a week without being compensated with overtime. The new rules reset that threshold to increase the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually), effective Dec. 1.

The rule also expanded the definition of “salary basis” to allow non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary test requirement. Employers are given flexibility in designing systems to make sure appropriate records are kept to track the number of hours worked each day.

In November 2016, U.S. District Judge Amos Mazzant, of the U.S. District Court Eastern District of Texas, approved an emergency motion for preliminary injunction, halting the intended Dec. 1 effective date of the rule on a nationwide basis. The delay is effective until a final legal decision is made on the legality of the requirements

The judge found merit with arguments that the rule would create a financial hardship, violate the Administrative Procedures Act, and exceed both the Labor Department’s statutory authority and the Congressional intent of the Fair Labor Standards Act.

The RFI solicits feedback on questions related to the salary level test, the duties test, varying cost-of-living across different parts of the U.S., inclusion of non-discretionary bonuses and incentive payments to satisfy a portion of the salary level, the salary test for highly compensated employees, and automatic updating of the salary level tests. 

“The Department is aware of stakeholder concerns that the standard salary level set in the 2016 final rule was too high,” the RFI says. “In particular, stakeholders have expressed the concern that the new salary level inappropriately excludes from exemption too many workers who pass the standard duties test, especially given the lack of a lower long test salary for employers to utilize for lower wage white collar employees.”

In the 2016 Final Rule the Department estimated that 4.2 million salaried white collar workers would, without some intervening action by their employers, change from exempt to non-exempt status, it adds.

The Labor Department is publishing the RFI to gather information to aid in formulating a proposal to revise the part 541 regulations.      

The agency is requesting public comments on the rule and a variety of questions. Among the querries:

  • Should the regulations contain multiple standard salary levels? If so, how should these levels be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? 
  • Should the regulations set multiple salary levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? 
  • What would the impact of multiple standard salary levels be on particular regions or industries, and on employers with locations in more than one state?
  • Should the Department set different standard salary levels for the executive, administrativeand professional exemptions as it did prior to 2004 and, if so, should there be a lower salary for  executive and administrative employees as was done from 1963 until the 2004 rulemaking? 
  • What would the impact be on employers and employees?
  • Does the standard salary level set in the 2016 Final Rule work effectively with the standard duties test or, instead, does it in effect eclipse the role of the duties test in determining exemption status?  At what salary level does the duties test no longer fulfill its historical role in determining exempt status? 
  • Is the amount of the standard salary level relevant in determining whether and to what extent such bonus payments should be credited? 
  • Should there be multiple total annual compensation levels for the highly compensated employee exemption?  If so, how should they be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method
  • Should the standard salary level and the highly compensated employee total annual compensation level be automatically updated on a periodic basis to ensure that they remain effective, in combination with their respective duties tests, at identifying exempt employees? 

The RFI will be published in the Federal Register with a 60-day public comment period. Instructions on submitting public comments are in the RFI. Comments may also be submitted electronically at http://www.regulations.gov