Employers Share Overtime Rule Concerns with DOL

 

Allen Smith, J.D. By Allen Smith, J.D. September 21, 2018
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​Employers have told the U.S. Department of Labor (DOL) that it's OK to increase the salary threshold for the white-collar exemptions from overtime requirements—but not by too much. The comments came in the first of four listening sessions held around the country. The final one is Sept. 24 in Providence, R.I.

Increases in the salary threshold mean employers will likely pay more overtime after reclassifying formerly exempt employees as nonexempt, raise employees' pay to keep them exempt or reclassify employees as nonexempt but limit their hours so they aren't paid overtime. For employers, these choices could be expensive and unpopular.

The threshold currently is $23,660, where it has been since 2004. The Obama administration overtime rule, which a court blocked, would have increased it to $47,476. The Society for Human Resource Management (SHRM) supports an increase to the exempt salary threshold, but not too much, too fast.

"It's very clear that all speakers agreed the current threshold is too low," said Nancy Kasmar, SHRM-SCP, principal with Compensation Connections in the Seattle area, who attended the Sept. 11 listening session in Seattle.

The Obama administration's overtime rule would have made the duties tests moot by raising the salary threshold too much, noted Mike Aitken, SHRM's senior vice president of government affairs, who attended the Sept. 7 listening session in Atlanta. To be exempt, employees must be paid at least the salary threshold and meet the duties tests.

SHRM favors the methodology used in the 2004 increase. At that time, the department relied on the lowest 20 percent of salaried employees in the South, the region with the lowest wages in the U.S. according to the latest census, to calculate the salary threshold.

Budgetary Constraints

If the salary threshold is set too high, employers will have to determine how to pay for either significantly higher overtime or increased compensation costs, according to Stephanie Mullison, manager of HR compliance with Turner Broadcasting System Inc. in Atlanta, who attended the listening session there. These additional costs would be operational and deducted from overall profits. As a result, employers would have to weigh options to pull funds from other budgetary areas or look at ways to increase overall profits proportionately. Employees and customers might be affected.

Faced with a high salary threshold, employers' most likely options might include:

  • Reducing benefits.
  • Limiting promotion possibilities.
  • Delaying the creation of new roles.
  • Eliminating existing positions.
  • Reducing standard weekly hours across nonexempt staff from 40 to the mid-30s.
  • Discontinuing existing services or products.
  • Passing on to consumers higher operational costs through increased product or service prices.

A substantial increase in the salary threshold may also lead to salary compression, requiring employers to keep salary differences between managers and subordinates small or to boost all other management employees' pay, said Robert Hingula, an attorney with Polsinelli in Kansas City, Mo., who attended the Sept. 13 session there.

Rep. Mark Takano, D-Calif., was present at the Seattle session and urged the DOL to adopt an automatic update of the salary threshold every three years, which the halted Obama administration overtime rule also adopted.

Patrick Brady, SHRM's director of congressional affairs for employment and labor policy, attended the session and said, "We pushed against that idea." It does not, he said, take into account, as required by the Fair Labor Standards Act (FLSA), economic dynamics that may not support automatic increases to the threshold.

The DOL should adopt a uniform salary threshold across the nation rather than regional salary thresholds, noted Marty Heller, an attorney with Fisher Phillips in Atlanta who attended the Atlanta listening session. He said regional thresholds would be "an administrative nightmare."

The DOL has not disclosed whether it will meet its projected timeline for issuing a proposed rule, which it had predicted would be sometime in January, noted Nancy Hammer, SHRM vice president, regulatory and judicial affairs counsel. The department is not bound to release the proposed rule by January, she said.

Aitken said employers asked for at least six months, and perhaps longer, to implement the rule once it becomes final. And the deadline for implementing the thresholds should "avoid adversely conflicting with employers' existing annual merit [pay increase] cycles," said Mullison, who thinks employers should have at least one year to put the new threshold in place.

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]

Reclassification Viewed as Demotion

Changing an employee's FLSA status from exempt to nonexempt is something that employees may perceive as a demotion, Mullison said.

"Many employees feel the status change comes with more oversight or micromanagement from supervisors and less flexibility because of the need to track and record all hours worked on a weekly basis," she noted. "Although employers can still provide nonexempt employees with flexible work arrangements, such as [the ability to] work from home, four 10-hour workdays, and early and late departures, the ability to work a few additional hours one week in anticipation of or to make up for a shortened week in the future or past is no longer an option."

"Some people were upset when we reclassified them to nonexempt" following the Obama administration's overtime rule, observed Jennifer Clemens, SHRM-SCP, assistant director of human resources with the Archdiocese of Seattle, who attended the listening session there. Reclassified nonexempt employees took offense that their hours had to be tracked and felt that the organization didn't trust them and valued them less.

According to Cassidy Solis, SHRM's senior advisor of member advocacy, two of the speakers at the Sept. 14 Denver listening session said that after they reclassified employees following the 2016 rule, "many reclassified employees ended up leaving."

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