Employers Don’t Want New Overtime Rule to Repeat 2016 Mistakes

Allen Smith, J.D. By Allen Smith, J.D. October 17, 2018
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Layoffs, reduced employee benefits and diminished customer services are just some of the reasons why many employers opposed the 2016 proposed revisions to the overtime rule. All of those concerns re-emerged in a hearing on Oct. 17 at the Department of Labor (DOL), which is in the process of revising the overtime rule, which was blocked by court order and never took effect. The DOL said it will release a new overtime plan in March 2019. 

The exempt salary threshold—the minimum amount an employee must earn to be exempt from the Fair Labor Standards Act's (FLSA's) overtime requirement—is currently $23,660, a level established in 2004. The Obama administration overtime rule would have increased it to $47,476, which means employers would have to raise salaries to keep employees exempt, or reclassify them so they remained hourly workers, which some would view as a demotion. The Society for Human Resource Management (SHRM) supports an increase to the exempt salary threshold, but not too much or too fast. Conversely, employee representatives defended the 2016 rule and urged the DOL to abandon its new proposal. An appeal on the blocked rule is pending until the DOL issues a final overtime rule.

Employers' Reaction to Blocked Rule Explained

To adjust to the 2016 rule's more than doubling of the salary threshold, employers would have to do several things, testified Tammy McCutchen, an attorney with Littler in Washington, D.C., and a former administrator of the DOL's Wage and Hour Division. For instance, she said:

  • 6.4 percent of employers would have to cut positions.
  • 21 percent would have to limit alternative working arrangements, such as customized work hours.
  • 12.4 percent would have to reduce annual bonuses.

These measures would be taken because employers might feel compelled to raise salaries so employees could remain exempt, raising overall labor costs. Or if employers reclassified exempt workers as nonexempt, they might be forced to pay more overtime or hire more workers. Alternative working arrangements might be restricted due to concerns about employees working off the clock in violation of the FLSA.

Tiffany Bloyer, human resources director with the County of Franklin in Chambersburg, Pa., spoke on behalf of SHRM, saying that the 2016 rule would have led to budget cuts, layoffs and reduced services to county residents, or to increased county costs of $155,000 per year due to higher salaries.

Employees dislike having their status switched from exempt to nonexempt, because they tend to feel it's a demotion, said Amy Woodward, director of human resources and vice president with The National Capital Bank of Washington.

The National Association of Counties (NACo) isn't opposed to an increase in the salary threshold but doesn't support doubling the salary threshold, said Daria Daniel, NACo's associate legislative director of community, economic and workforce development. The 2016 rule would have hit rural communities particularly hard and may have led to cuts in employee benefits and services, she said. Daniel said the DOL should give employers a year after the final rule's adoption to make changes.

NACo also opposed any changes to the duties test or to automatic annual increases to the salary threshold. To be exempt, an employee must not only earn pay that meets the salary threshold, but must also have job duties that primarily involve executive, administrative or professional duties as defined by  FLSA regulations. 

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

Some Urge DOL to Defend 2016 Rule

The DOL should discontinue its overtime rulemaking and "vigorously defend the 2016 rule" in court, said Heidi Shierholz, senior economist and director of policy for the Economic Policy Institute, who was chief economist at the DOL from 2014 to 2017.

The key to preventing morale problems by reclassifying employees from exempt to nonexempt is to explain to reclassified workers that the classification is a legal one and employees still have the same promotion potential, said Judy Conti, the National Employment Law Project's government affairs director. She added that she supports automatically indexing the salary threshold.

Pete Winebrake, an attorney with Winebrake & Santillo in Dresher, Pa., said that he has represented employees who have been designated exempt under the present executive exemption who were on food stamps and whose children had subsidized school lunches. The executives he represents in FLSA cases, he said, earn low wages, work long hours and barely get by.

If the DOL wants a lower salary threshold than was proposed in 2016, it needs a more stringent duties test, he said.

Deborah Chalfie, a senior legislative representative with AARP, said the 2016 rule was "well-reasoned and well-documented." If the DOL adopts a lower salary threshold than the 2016 rule, it should reinstate the "long duties test" that it dropped in 2004, she said. This test had a lower salary threshold but a more stringent duties test, according to Baker Donelson, a law firm with offices in 10 states in the southeastern U.S. and Washington, D.C. "To be exempt, an employer could devote no more than 20 percent of hours worked in the workweek to nonexempt work. The short test, on the other hand, had a higher salary [threshold] level but a less stringent duties test, which was more akin to the current duties test," the firm states on its website.

However, Michael Lotito, an attorney with Littler in San Francisco, spoke on behalf of the International Franchise Association, which opposes a quantitative duties test. That test requires a certain amount of time be spent on exempt duties, or not be spent on nonexempt duties to be exempt from overtime requirements. He noted that California has one. In that state, an exempt employee must be engaged in exempt duties more than 50 percent of the time.

As for employers' response to the 2016 rule, it was "a total shock," said Shannon Meade, director of labor and workplace policy with the National Restaurant Association. She urged the DOL to give employers adequate time to respond to its upcoming rule.

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