Anticipated Overtime Rule Previewed

​Former Wage and Hour Division Administrator Tammy McCutchen updated attendees of the SHRM Employment Law & Compliance Conference 2022 about the salary threshold for white-collar exemptions in the proposed overtime rule due out soon. How high might it go?

Speaking on March 29 in Washington, D.C., McCutchen predicted that the anticipated proposed overtime rule would be issued in May rather than April, as the U.S. Department of Labor (DOL) originally forecast in its fall 2021 regulatory agenda. She noted that six 90-minute meetings have been scheduled with stakeholders from March 8 to April 6: three meetings with unions and worker advocates, plus three more with industry groups, including one with SHRM.

While the primary goal of the rule is to update the minimum salary-level requirement for white-collar exemptions, changes to the duties tests also will be considered, said McCutchen, who is a strategic advisor for New York City-based ComplianceHR.

The Obama administration's 2016 overtime rule, which a federal court in Texas held to be invalid, set the salary threshold at $47,467 per year. Workers who made less than that amount would have been eligible for overtime pay. If that amount were adjusted for inflation, it would now be $56,836 annually, McCutchen noted.

The Trump administration's 2020 overtime rule raised the salary threshold to $35,568 per year. Adjusted for inflation, that amount today would be $42,594 annually. It had previously been set at $23,660.

At the end of last year, more than 100 unions and advocacy groups called on the DOL to raise the salary threshold for exempt workers to $73,551 per year and to $82,745 annually by 2026. "That's high," McCutchen noted.

Duties Tests

The 2016 regulations were ruled as putting too much emphasis on the salary requirement, which effectively would have made the duties tests irrelevant.

The duties tests denote which employees are exempt—not eligible for overtime pay—and they depend on a variety of factors. Each of the three white-collar exemptions has slightly different criteria:

• Executive exemption. The employee's primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee's suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight). 
• Administrative exemption. The employee's primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer's customers. The employee's primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
• Professional exemption. The employee's primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.

The same advocates who called for a $73,551 annual salary threshold for the white-collar exemptions described the current duties tests as "toothless" and demanded tighter duties tests, McCutchen said. She noted that she led the effort to revamp the duties tests in 2004.

'Litigation All Over Again'

McCutchen asked for a show of hands at the conference for who favored an increase in the salary threshold. Everyone raised their hands, but few attendees supported an increase of the salary threshold above $50,000 per year.

McCutchen predicted that if the DOL increases the salary threshold to $50,000 or above, "there will be litigation all over again by employer interest groups."

The department instead could quickly raise the salary threshold to around $48,000 or $49,000, McCutchen said, but she thinks if the DOL "goes for too much, it will end up with nothing," saying that the department shouldn't let the perfect be the enemy of the good.

Misclassification Targeted

In addition to soon issuing a new proposed overtime rule, the DOL is going after the misclassification of workers as independent contractors, particularly in the home care industry, McCutchen said.

While a federal judge has reinstated a Trump-era independent contractor rule, the DOL is likely to appeal that decision, she said.

McCutchen noted that industries particularly vulnerable to DOL enforcement efforts include:

• Construction.
• Food services.
• Health care.
• Retail.
• Agriculture.

The department also focuses its enforcement efforts on the amusement industry; apparel manufacturing; auto repair establishments; child care services; guard services; hair, nail and skin care services; hotels and motels; janitorial services; landscaping services; and temporary help.

The DOL goes after those violating wage and hour laws in industries with low wages and a high number of violations, McCutchen explained.

However, "do not think, 'I'm not on the list, I'm fine,' " she cautioned.

DOL Is Seeking Liquidated Damages and Civil Penalties

McCutchen also noted that the DOL is regularly recovering double damages—or liquidated damages—once again, after the Trump administration limited their use to when an employer acted in bad faith or willfully.

In an April 2021 blog post, the DOL announced that it would seek liquidated damages to settle investigations prior to litigation. This change makes settlements harder to reach, McCutchen said.

The DOL has instituted civil monetary penalties for violations of the Fair Labor Standards Act's (FLSA's) tip-sharing provisions, as well. Civil monetary penalties are available against employers, managers or supervisors who take tips earned by their employees.

Violations need not be repeat or willful for penalties to be available, McCutchen noted, but penalties are more likely if the violations are willful.

The department defined willfulness as 1) failing to follow advice from the Wage and Hour Division that conduct is not lawful or 2) failing to adequately inquire about whether the conduct is in compliance with the FLSA.

She explained to the conference attendees that the second part of this definition is a "full employment regulation." 

"If you fail to ask whether someone could be exempt, you could be hit with penalties," she said.