Proposed Federal Overtime Rule Doesn’t Include Automatic Adjustments

 

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Unlike the overtime rule that President Barack Obama's administration put forward in 2016, the Department of Labor's (DOL's) new proposal doesn't include automatic adjustments to the exempt salary threshold.

Employers likely will be pleased that the DOL's current proposal doesn't call for automatic adjustments to the salary threshold, as many believe the marketplace—rather than the federal government—should dictate appropriate salary levels, said Josh Woodard, an attorney with Snell & Wilmer in Phoenix. 

Under the Fair Labor Standards Act, workers must be paid 1 1/2 times their regular rate of pay for hours worked beyond 40 in a workweek, unless they fall under an exemption. In addition to meeting certain duties tests, workers must earn a minimum salary to qualify for the white-collar exemptions. The current $23,660 threshold was last updated in 2004.

The Obama administration sought to increase the cutoff to $47,476 in 2016 and automatically adjust it every three years to represent the 40th percentile of earnings for full-time salaried workers in the lowest-wage census region. There are four census regions: Northeast, Midwest, South and West—and the 2016 rule was set to earnings in the South.

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Under President Donald Trump, the DOL scaled back its proposed threshold to $35,308 and scrapped the automatic adjustments.

Businesses will likely view the department's decision not to include automatic adjustments as a good thing. The controversial provision could have led to lawsuits about whether the department has authority to set automatic increases, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and a former acting administrator of the DOL's Wage and Hour Division. "By excluding this provision, the department is reducing the chance that a lawsuit will be filed challenging a final rule when it's issued," he said.

For now, the DOL will continue to enforce the $23,660 salary level, as the proposed rule must go through the formal rulemaking process, which includes a notice-and-comment period.

[SHRM members-only resource: FLSA Proposed Salary Increase: Impact Analysis Guide and Calculator]

Periodic Review

The DOL intends to propose salary-threshold updates every four years. "This would provide clarity and help workers and employers by having a regular and orderly process for future changes," according to the proposed rule.

Because the last adjustment was made in 2004, the DOL likely wants to have a set time frame in which to review the salary threshold for exempt employees so that too much time doesn't pass between adjustments, Woodard said.

The 2004 increase represented the only change to the white-collar exemptions' salary thresholds since 1975. "The days of waiting 15 to 20 years for increases in the minimum salary for exemption are likely over," noted Allan Bloom, an attorney with Proskauer in New York City. "I think we can expect more frequent updates to the salary thresholds, even if nothing is written into the regulations to that effect."

Notably, however, the preamble to the 2004 rule stated that the department needed to be more diligent about updating the threshold. "The department is responsible for updating regulations that, with each passing decade of inattention, have become increasingly out of step with the realities of the workplace," according to the April 23, 2004 Federal Register.

"Expressing a strong intent to revisit the rule every four years is positive, though sometimes the best intentions go awry," Robinson noted. "It's a good goal … and I hope they will do it."

The department is specifically seeking public comment on the proposal's language addressing periodic review. Employers—and other interested members of the public—wishing to comment on the proposal may do so by visiting www.regulations.gov. They will have 60 days to comment from the time the rule is published in the Federal Register.

If the DOL's proposal is implemented, employers would have an opportunity to provide input prior to any periodic changes being made to the salary threshold, Woodard said. "This process is far different from the Obama-era DOL's proposal, which would have resulted in automatic adjustments to the minimum-salary requirements had it not been blocked by a federal court."

[Visit SHRM's resource page on FLSA exemption classification.]

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