DOL Announces Long-Awaited Overtime Expansion Proposal

By Joanne Deschenaux Jun 30, 2015
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July 8, 2015 UPDATE: View the SHRM webcast on the Department of Labor's proposed changes to the overtime rules. Live broadcast July 9, 12 noon ET / 9 a.m. PT, with recorded webcast available beginning July 10.

Michael Eastman, counsel to SHRM on the overtime regulations and veteran of the 2004 overtime rule changes, will provide up-to-the-minute insight into the proposed changes. Also, Nancy Hammer, SHRM Public Policy Counsel, will outline SHRM's member advocacy efforts on how to respond to these proposed changes. Learn how you can help influence the final overtime regulation by providing DOL with direct feedback and describing your experiences complying with the FLSA and how the proposed changes could impact both your workplace and your employees.

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The Department of Labor (DOL) announced June 30, 2015, a highly anticipated proposed rule that would extend overtime protections to nearly 5 million white-collar workers.

Workers who earn as much as $970 a week—$50,440 a year—would have to be paid overtime even if they're classified as a manager or professional, according to an announcement on the DOL website.

Under current regulations, the salary threshold remains at $23,660 ($455 per week), which is below the poverty threshold for a family of four, and only 8 percent of full-time salaried workers fall below it, according to a fact sheet issued by the Obama administration. DOL intends to increase the amount annually to keep pace with inflation, said Mike Eastman, counsel to the Society for Human Resource Management (SHRM) on the overtime regulations and a veteran of the 2004 overtime rule changes, who presented the just-released proposed rule to attendees at the SHRM 2015 Annual Conference & Exposition in Las Vegas.

This change is “good for workers who want fair pay, and it's good for business owners who are already paying their employees what they deserve--since those who are doing right by their employees are undercut by competitors who aren't," Obama wrote in an op-ed published June 29 in the Huffington Post.

However, HR professionals attending the Annual Conference were worried about the effect the rule would have on their compensation budgets, which would take a hit from increased overtime pay or increasing salaries so that employees can keep their exempt status. They were concerned, too, about the effect on morale. Employees who are reclassifed from exempt to non-exempt often see the change as a lowering of their status in the organization.

"The DOL doesn't really believe us when we tell them that," Eastman said, encouraging the HR professionals to submit comments to the department and explain how the rule would effect their businesses.

And business leaders are concerned. A report from the National Retail Federation, for instance, argues that implementation of the new rules will cost retailers and restaurants millions of dollars, and they will "hollow out" low- and mid-level management positions, curtailing career advancement for middle-class workers, especially in rural states.

Randy Johnson, the Chamber of Commerce’s senior vice president of labor, immigration and employee benefits called the rule “another example of the administration being completely divorced from reality and adding more burdens to employers and expecting them to just absorb the impact.”

As an example of the impact, said one conference attendee, the previous updates in 2004 to the FLSA impacted paralegals significantly. Reclassifying these workers from exempt to nonexempt has had continued effects in reduced services to clients and the need to monitor and restrict paralegals' use of mobile devices and connectivity to work.

A conference attendee from California noted that when her state's wage and hour law changed in 2011, making it more restrictive than the federal rules, employees were first angry about the perceived lowering of their status to nonexempt, then happy with the increased overtime pay and vacation time. What turned out to be good for the employees, she said, has not been good for the business.

SHRM Issues Statement

SHRM issued a statement on the DOL’s proposed changes to the regulations, saying that, “While SHRM appreciates the need to ensure the regulations governing overtime protections keep pace with the evolving workplace and economy, we are very concerned that the DOL’s proposed rule will further exacerbate an already complicated set of regulations for employers and employees.”

Further, SHRM said that, “It is clear that this rule will affect nearly every employer in every industry and sector. Specifically, SHRM supports the need to adjust the salary basis level under the regulations. However, an over 100 percent increase from the current level will significantly impact employers and employees and will disproportionately affect the non-profit and service sector industries, as well as certain geographic areas of the country.”

Duties Tests Questioned

The proposed rules didn't change any part of the duties test to determine exempt status, but it did pose questions to business leaders: how would employers be effected if the duties test changed? Should the test be changed? What about "concurrent" work--when a manager performs both exempt and nonexempt work in the course of her job? Should that be tracked and limited to a certain percentage, such as 50 percent as in California's new rule?

Attendees spoke up in reaction to that proposal. How would they track it, they wondered. What would they do, for example, if a nurse supervisor had already performed her quota of nonexempt work yet had a ward full of patients that needed to be cared for?

The uncertainty about what changes could be coming to the duties test is concerning, said Lisa Horn, director of congressional affairs for SHRM. "The jury is still out on the duties test," she said.

The proposed rule does increase the highly compensated test to determine exempt status, raising the salary bar from $100,000 to $122,148. It may jump more, Eastman said: when this test last was updated, the level rose from $65,000 in the proposed rule to $100,000 in the final.

Rules Not Yet Officially Published

Although the Office of Management and Budget (OMB) has reviewed and approved the Notice of Proposed Rulemaking (NPRM), the document has not yet been published in the Federal Register, according to DOL.

Eastman said he expects the rule to be published formally within the next week, followed by a 60-day comment period. The DOL will review all comments, then draft a final rule and submit it for interagency review--a process that can take nine to 12 months.

What's Next

Eastman and Horn asked attendees to consider how these changes would affect their workplaces: Would employee autonomy suffer? Would companies need to hire more workers to make sure the work is getting done, if they can't afford to pay overtime? Or would companies restrict overtime and risk work falling behind? Eastman encouraged HR professionals to send their comments to SHRM and said the Society will use them to craft its comments to the DOL. Individuals can send comments to DOL, too, Eastman said, at www.regulations.gov.

Horn urged the attendees to visit advocacy.shrm.org/overtime to send their comments to SHRM, and to follow @SHRMATeam and #overtime on Twitter. On July 9, 2015, at noon ET, SHRM will host a webcast to review the proposed FLSA changes. Eastman and Nancy Hammer, SHRM's public policy counsel, will outline SHRM's member advocacy efforts on how to respond. Sign-up information for the webcast will be coming soon.

Joanne Deschenaux, J.D., is SHRM’s senior legal editor. Beth Mirza is director of online news operations.

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