Overtime Rule Changes Are Coming, but Will They Be in Time?

If the DOL doesn’t finalize a new rule before the 2020 elections, all bets are off

Stephen Miller, CEBS By Stephen Miller, CEBS March 14, 2018
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The long, drawn-out process of updating the overtime-pay rules that began under the Obama administration and changed direction once President Donald Trump took office now faces a wild card: If the Department of Labor (DOL) fails to issue a new final rule before the 2020 elections, and if the Democrats retake the presidency, the rule that was struck down in 2016 could come back to life.

"If Democrats win the presidency without a new final rule in place, expect the new administration's DOL to vigorously defend the [previously] proposed salary level," meaning that the threshold for the white-collar exemption could rise from the current $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized), said Tammy McCutchen, a principal in law firm Littler Mendelson's Washington, D.C., office. Anyone who makes less than $913 a week would then be eligible for overtime pay.

Unless exempt, employees covered by the Fair Labor Standards Act must receive at least time and one-half their regular pay rate for all hours work over 40 in a workweek.

Meeting the salary threshold doesn't automatically make an employee exempt from overtime pay; employees, for instance, must earn at least the standard salary threshold of $23,660 and the employee's job duties must primarily involve executive, administrative or professional duties as defined by the regulations, explained McCutchen, who served as director of the DOL's Wage and Hour Division under President George W. Bush.

She provided a wage and hour update on March 12 at the 2018 Society for Human Resource Management (SHRM) Employment Law & Legislative Conference in Washington, D.C.

A Complicated History

The Obama administration's final rule revising the Fair Labor Standards Act (FLSA) overtime-pay provisions was set to take effect on Dec. 1, 2016. Along with raising the salary threshold for the overtime exemption, the rule automatically adjusted the threshold every three years based on changes to the earnings of full-time salaried workers in the lowest-wage census region.

However, just 10 days before the rule was to take effect, a Texas district court issued a nationwide preliminary injunction, followed by a permanent injunction on Aug. 31, 2017.

"The court found that the final rule exceeded the DOL's authority by making overtime status depend predominantly on a minimum salary level," McCutchen said. Employees who "are clearly managers, with the authority to hire and fire, would have been reclassified as being hourly rather than salary" workers, which the court held violated the FLSA's intent.

Most businesses don't oppose having a minimum salary level for overtime, McCutchen said, but the increase under the final rule was "too much, too fast."

[SHRM members-only form: Fair Labor Standards Act (FLSA) exemption questionnaire]

Not Dead Yet

Last October, the DOL appealed the district court's permanent injunction (McCutchen cited legal technicalities for this move) and filed a motion to stay the DOL's appeal to the 5th Circuit pending the outcome of new rulemaking.

In July 2017, the DOL issued a request for information for a new rule and accepted comments through September. After the comment period closed, the DOL announced that it planned to propose a new overtime rule by the end of October 2018.

While this sounds reassuring, "the case is still open," McCutchen noted. If the DOL were to publish a new proposed rule in October, there would typically be a 60- to 90-day comment period, "so there will be no new rule this year."

While a new final rule is expected by the end of 2019, what if there are unforeseen actions by the 5th Circuit, or turmoil within the DOL, and no final rule takes effect before the 2020 presidential election?

If there should be a delay, "a Democratic administration would again switch sides and could move to implement the halted final rule," McCutchen said.

One reason for slow progress at the DOL to date, she noted, is that the nominations of Cheryl Stanton as wage and hour administrator and Patrick Pizzella as deputy DOL secretary, among other positions, are still waiting for Senate confirmation, which requires 30 hours of debate per nominee on the Senate floor. This has left Labor Secretary Alex Acosta without the leadership he needs to spearhead a revised overtime rule with a less-severe salary-threshold increase, she explained.

"Keep watching this issue," McCutchen advised. "After 2020, we could be back at the $913-a-week level."

SHRM Supports a Reasonable Increase

Most of the comment letters employers submitted to the DOL favored a modest increase to the minimum-salary level, applying the methodology that the DOL used when it last updated the overtime rule in 2004, when McCutchen oversaw the Wage and Hour Division. Few employers supported jettisoning the salary test altogether in favor of a duties-only approach, and few favored automatic updates to the salary level.

What might the new salary threshold be under a newly proposed Trump administration rule?

  • If applying the 2004 methodology, as McCutchen believes the DOL should do, the revised salary threshold would be $31,824 annualized, or $612 per week.
  • If, instead, the DOL were to increase the threshold by the level of inflation, the new salary level would be $30,576 annualized, or $588 per week.

In comments submitted to the DOL, "SHRM welcomed DOL's re-examination of the overtime rule," said Nancy Hammer, SHRM senior government affairs policy counsel. "We believe an increase in the threshold is long overdue and are encouraged that our members' input can help DOL arrive at a more workable threshold."

SHRM does not support automatic updates to the exempt-salary threshold because "such increases ignore economic variations of industry and location and make it hard for HR to manage merit increases for employees near the salary level," according to the Society's 2018 Guide to Public Policy Issues, released at the conference.

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