Overtime Proposed Rule Could Wreak Havoc

By Allen Smith, J.D. Jun 29, 2015
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LAS VEGAS—The Department of Labor’s (DOL’s) long-anticipated overtime proposed rule might come out this week, Tammy McCutchen, an attorney at Littler in Washington, D.C., said in a June 29, 2015, concurrent session at the Society for Human Resource Management 2015 Annual Conference & Exposition.

She checks the Federal Register preview site each day to see if the proposed rule is about to be issued. If not soon, it could happen at least by the end of July, she predicted.

In the meantime, McCutchen, who was administrator of the DOL’s Wage and Hour Division the last time the overtime regulations were revised in 2004, shared what she is hearing about the proposed rule. And some of what she’s hearing is alarming.

Salary Level

McCutchen noted that everyone agrees it’s time to raise the salary level since it hasn’t been raised in 11 years; the question is by how much.

The Economic Policy Institute has projected that the weekly salary threshold for exempt status will be increased from $455 for all exemptions to $984 a week. McCutchen asked session attendees how many had a manager making less than $52,000 annually, and virtually every hand went up.

She noted that if the salary level is raised that high, it would be higher than California’s, which is $600 a week, and New York’s, which is $800 a week.

Some are calling for even higher salary levels; she’s heard one former DOL official say it should be as high as $69,000 annually. McCutchen said $35,000 to $45,000 would be “a lot more reasonable.”

There also are proposals to have an annual automatic increase for inflation of the salary level. If that idea reaches the final rule stage, employers would have to reclassify every year, McCutchen observed. She expects the DOL to include this idea in the proposed rule, requiring HR professionals to inform the department why it’s a bad idea.

Primary Duty

The DOL is likely to adopt California’s rule on the primary duty test, she noted. California requires that an employee spend more than 50 percent of the time on exempt duties in order to be classified as exempt.

Under federal law, a hard percentage has never been applied. That’s likely to change, McCutchen said.

Exempt employees will have to do exempt work more than 50 percent of the time under the proposed rule, she predicted, and that will raise administrative questions. Would an employer have to conduct expensive time studies, for example, or follow employees around to see what they are doing?

“If this is in the final rule, your jobs just got a lot harder,” McCutchen told attendees. She noted that in California, some employers have given up on applying this test and classified everyone as nonexempt.

Under the executive exemption, an employee must supervise at least two full-time employees. But that begs the question: What is full time?

The proposed rule may define full time as 40 compensable work hours, McCutchen said. So what if someone is on Family and Medical Leave Act leave? Or what if someone has quit or is away on vacation?

As a practical matter, this change may mean that employers will want to treat employees as fitting within the executive exemption only when they supervise at least three employees, she remarked.

Hard-Hit Industries

McCutchen said the industries hit hardest by the proposed rule would be restaurant and retail. She noted that $35,000 is a common salary for assistant managers and that making them eligible for overtime has been one of the main goals of the rulemaking.

Hospitality and other industries that have front-line managers who sometimes step in and do the same work as the people they supervise also are likely to be hit hard by the rule, she predicted. Employers with employees below the new salary threshold will be vulnerable, McCutchen added. After all, the stated purpose of the proposed rule was to make “millions more eligible for overtime pay,” she observed.

While McCutchen is watching for the proposed rule to come out any day now, she said the final rule likely will come out in summer or fall of 2016. At that time, employers will have to have their employees reclassified. She doesn’t expect the final rule to have many changes from the proposed rule.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.
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