Employer Lobbying on Overtime Rule Led to Changes

By Allen Smith, J.D. Jun 1, 2016
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Strong employer lobbying efforts yielded important changes to the proposed overtime rule, management attorneys say.

Betty Graumlich, an attorney with Reed Smith in Richmond, Va., said that significant alterations in the final rule, which implements the overtime requirements, include:

  • The effective date of the final rule is now Dec. 1 instead of the proposed 60 to 120 days from the issuance of the rule in the Federal Register.
  • The salary basis test will now be tied to the 40th percentile of the weekly earnings of full-time salaried employees in the lowest-wage census region, the South, rather than the 40th percentile of the weekly earnings of full-time salaried employees across the nation.
  • The weekly salary test for white-collar exemptions went from a proposed $970 per week to $913 per week, a 6 percent reduction.
  • The Department of Labor (DOL) did not change the duties tests. (The proposed rule did not recommend changes to the duties tests, but suggested that the DOL was contemplating alterations by listing several questions the department had about adjusting the tests.)
  • The final regulations allow 10 percent of the salary basis test to come from nondiscretionary bonuses, commissions and incentive payments.
  • The salary basis will now be updated every three years instead of the proposed rule’s annual increases.

Lobbying efforts included the Partnership to Protect Workplace Opportunity’s (PPWO's) letters to and meetings with Congressional members, uniting a broad spectrum of industries. Members of the Partnership to Protect Workplace Opportunity—dedicated to advocating for business, the public sector, nonprofits and higher education on the overtime rule and led by the Society for Human Resource Management (SHRM)—include the Chamber of Commerce, the College and University Professional Association for Human Resources, the National Association of Counties, the National Association of Manufacturers, the National Federation of Independent Business, the National League of Cities, the National Retail Federation and many others. In addition to leading the PPWO effort,  SHRM also executed a robust direct advocacy effort with the administration and Congress that included thousands of HR professsionals weighing in on the overtime proposal through the SHRM Advocacy Team (A-Team), as well as offering a business-supported bill that aimed to block the overtime rule.

Dec. 1 Effective Date

“Payroll systems do not just change on a dime,” said Kyle Ferachi, an attorney with McGlinchey Stafford in Houston and Baton Rouge, La. “With 200 days, companies will have adequate time to determine whether they will add additional employees at lower rates, raise currently exempt employee salaries or develop some hybrid approach. Two hundred days is a welcome approach.”

The later effective date “will help significantly in terms of allowing employers time to adjust, redesign compensation systems and the like,” said Robert Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich., and immediate past chair of the Wage and Hour Defense Institute, a network of wage and hour lawyers.

“Some salary plans, time and attendance policies, bonus and commission plans, and even benefit plans will have to be redesigned and rewritten,” he noted. “Not having to do all of this in a ‘fire-drill’ mode will allow employers to really deliberate on what will be best for the employer and the employees.”

No Change to Duties Test

“The decision to not change the job duties portion of the white-collar exemptions is, in many ways, a significant victory for employers,” said Michael Schmidt, an attorney with Cozen O’Connor in New York City. “Employers will now not have to deal with the disruption and cost that would have accompanied a change in the job duties tests.” Particularly important for the retail and restaurant industries, employers will not have to focus strictly on time spent on exempt versus nonexempt functions when determining who is exempt, he added.

“Given the amount of time—and, to some extent, backlash—involved with this whole process since President [Barack] Obama began the initiative in March 2014, it is unlikely that employers will see a new rule with substantive changes in the job duties tests any time soon, which many will deem to be a victory in and of itself,” Schmidt said.

However, John Thompson, an attorney with Fisher Phillips in Atlanta, said, “Rather than ‘victory,’ I’d characterize things as, ‘It could have been worse.’ ” He added that it was “highly significant that no change was made in the duties tests. I suspect that, had any been made, this would have substantially increased the political and litigation exposure for DOL, in the sense that there might have been more challenges entailing an appreciable risk of an adverse outcome for DOL.”

Thomas Gies, an attorney with Crowell & Moring in Washington, D.C., said the fact that the DOL did not add any additional duties for the white-collar exemptions “is one very significant victory for employers.” He remarked, “Making significant changes in the job duties test with very little advance notice would have been a nightmare for many employers.”

Looking Ahead

Thompson added, “Again from the ‘it could have been worse’ perspective, the three-year update with a 150-day lead time is better than what was proposed, [and] being able to count nondiscretionary bonuses and other incentives toward the salary other than for the highly compensated group will help some.” The 150-day lead time refers to the DOL giving employers 150 days of notice of how much the exempt salary level will increase on a triennial basis before the nonexempt salary threshold level rises.

Employers should keep an eye on the figures that will drive the updated exempt salary level. “There is no need to wait until the last minute,” Thompson said. “Employers can get a feel for what the likely figure will be ahead of time by looking at the periodic [Bureau of Labor Statistics] releases of the weekly earnings of full-time nonhourly workers in the lowest-wage census region.”

“A good rule of thumb is that the 40th percentile has salary increases of 1 to 3 percent annually; therefore, on Jan. 1, 2020, the salary threshold will likely increase by 3 to 9 percent,” said Dena Sokolow, an attorney with Baker Donelson in Tallahassee, Fla.​​

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