Labor Department Commits to Reviewing Overtime Rule More Frequently

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Labor Department Commits to Reviewing Overtime Rule More Frequently

Starting Jan. 1, 2020, only employees who earn a salary of at least $35,568 may be classified as exempt from overtime pay. The U.S. Department of Labor (DOL) raised the exempt salary cutoff for the first time in 15 years, but the department expressed its commitment to increasing the threshold more frequently in the future.

The DOL agreed with public commenters who said waiting too long to make updates causes problems for employers and workers. Among other reasons, delays "cause future increases to be larger and more challenging for businesses to absorb," the department said.

To be exempt from overtime under the federal Fair Labor Standards Act's (FLSA's) executive, administrative and professional exemptions, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek.

"Regular updates ensure that the salary level test continues to screen from exemption obviously nonexempt employees who are unlikely to be performing the duties of bona fide executive, administrative or professional employees," according to the final rule.

The Society for Human Resource Management (SHRM) agrees with the department's decision to update the salary levels more regularly. "Regular updates informed by economic conditions and public input are important to ensuring the rules stay current," said Nancy Hammer, SHRM's vice president of regulatory and judicial engagement.

Updates will not be automatic and will continue to require notice-and-comment rulemaking.

Quadrennial Review Dropped

The DOL initially aimed to recommend salary-threshold updates every four years through notice-and-comment rulemaking. After reviewing more than 116,000 comments from the public, however, the DOL decided not to commit to a specific timeframe.

In the final rule, the department said it "agrees with commenters who stated that this commitment could deprive the department of flexibility to adapt to unanticipated circumstances and believes that prevailing economic conditions, rather than fixed timelines, should drive future updates."

Robert Boonin, an attorney with Dykema in Detroit said that, though this was the primary reason, the department also likely opted to retain flexibility to avoid making commitments that it can't meet.

"It's hard to commit to regulatory review so frequently, particularly if there are other priorities on any administration's legislative agenda," he said.

But the department does intend to update the thresholds "more regularly in the future," according to the final rule.

More frequent assessments could allow the department to better respond to economic conditions as they change and prevent employers from being disrupted by large-scale increases, said Paloma Ahmadi, an attorney with Haynes and Boone in New York and San Antonio, Texas.

Prior Administration Wanted Automatic Adjustments

In a blocked 2016 rule, President Barack Obama's administration sought to increase the salary cutoff to $47,476 and automatically adjust it every three years to represent the 40th percentile of earnings for full-time salaried workers in the lowest-wage census region.

A federal judge held that the DOL exceeded its authority by raising the rate too high and therefore also held that the automatic updating mechanism was unlawful. 

In its new rule, the current administration said adhering to a fixed schedule is too rigid. "Because the department believes that it is important to preserve the department's flexibility to adapt to different types of circumstances, the department declines the suggestions by employee representatives to adopt an automatic updating mechanism as in the 2016 final rule," according to the new rule.

Many Democratic lawmakers don't support the decision. The final rule "fails to include automatic updating to keep pace with wage growth over time," said Rep. Mark Takano, D-Calif. He introduced a bill in the U.S. House of Representatives that would raise the threshold to about $51,000.

Many employer groups and management attorneys, however, support the DOL's decision to abandon automatic adjustments and commit to more frequent reviews.  Marty Heller, an attorney with Fisher Phillips in Atlanta, said that committing to revisit the threshold every so many years might put a mandate on the department to review the rule even when economic conditions show it's not the right time. "Every time you do this, you have to spend money to justify the analysis and the decision made," he said, noting that the final rule gives the DOL flexibility to decide whether economic conditions warrant a review and potential change.

Ahmadi hopes that future attention to market conditions will help avoid the need to make large corrections that employers would then have to manage. 

"Adjusting the threshold via notice-and-comment rulemaking each time ensures that the DOL gets feedback from stakeholders about what's really going on for employers and employees rather than baking in an assumption that might not reflect the experiences of these groups," she added.

Notably, however, the preamble to the 2004 rule stated that the department needed to be more diligent about updating the threshold. "The department is responsible for updating regulations that, with each passing decade of inattention, have become increasingly out of step with the realities of the workplace," according to the April 23, 2004 Federal Register.

Prior to the new rule, the 2004 increase represented the only change to the white-collar exemptions' salary thresholds since 1975. 

"Every 15 years is too long and hopefully the policymakers will not shelve the issue for so long going forward," Boonin said.

"The DOL agrees and is affirmatively stating that it intends to revisit the issue more regularly," he said. "Hopefully it can live up to its intentions." 

 

[Visit SHRM's resource page on the FLSA Overtime Rule.]

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