What Would a New FLSA Overtime Rule Look Like?

Some speculate that the rule may include an automatic adjustment for inflation

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Secretary of Labor Alexander Acosta has said on several occasions that the Fair Labor Standards Act's (FLSA's) exempt salary threshold for white-collar workers needs to be raised, just not by as much as the blocked Obama administration-era rule would have required. So what would a new rule entail? It reportedly might include automatic adjustments for inflation.

"Barring a catastrophe, I think we are going to get a new salary level, it's just a question of when and how much it will be," said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former administrator of the Department of Labor's (DOL's) Wage and Hour Division.

Under President Barack Obama, the DOL sought to raise the threshold to $47,476, but a federal judge in Texas said the rule was invalid. For now, the 2004 threshold of $23,660 remains in place. Employees must be paid a salary of at least that amount and meet certain duties tests or be paid 1.5 times their regular hourly rate for hours worked in excess of 40 in a week.

The Society for Human Resource Management (SHRM) supports a moderate threshold increase to nearly $32,000, according to SHRM's comments in response to the Wage and Hour Division's July request for information (RFI) on a potential new rule.

It's important to note that there are provisions that could be included in a new rule beyond just a one-time salary threshold adjustment, such as automatic increases and multiple salary levels based on region.

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

Automatic Adjustments

Acosta told business groups that he is considering an automatic adjustment that will keep pace with inflation, Bloomberg BNA reported.

The DOL's RFI specifically asked the public if the salary level should be automatically updated on a periodic basis and if there should be multiple salary levels based on location. "Most, if not all, of the business groups that responded to the RFI have come up in opposition to automatic increases and regional differences," said Michael Lotito, an attorney with Littler in San Francisco and co-chair of its government relations branch, the Workplace Policy Institute. Particularly for national employers, a patchwork of regional salary levels could create compliance and budget issues.

As for automatic adjustments, it is highly debated as to whether the DOL has the statutory authority to adopt such an approach, Lotito said.

Under the FLSA, the secretary of labor has the authority to "define and delineate" the act's exemption categories from time to time. The DOL has considered whether to include automatic adjustments in the past and has previously rejected the idea.

"In 2004, the department basically said it lacked the authority to do that," Robinson said. The DOL reached a different conclusion for the 2016 rule, but he still thinks that allowing for automatic adjustments that are tied to the inflation index doesn't properly reflect the secretary of labor's responsibility to define and delineate those employees who should qualify for the exemptions. Rather, the secretary of labor's responsibilities include reviewing actual salary data and proposing new salary levels, he said.

If automatic adjustments are included, salary levels may be determined by U.S. Bureau of Labor Statistics data that don't necessarily reflect what is being paid to employees in the marketplace, Robinson added. "This could have the prospect of raising the salary level beyond what it should be."

From a practical perspective, an automatic adjustment could create a lot of budget problems, Lotito said. For example, the DOL would probably announce new levels toward the end of a calendar year to take effect the following January, but employers may operate on a noncalendar fiscal year and provide raises at a time other than the start of the year. So exempt employees who don't meet the new threshold would need special salary adjustments.

"Also, if the department is going to take a position that utilizes automatic increases for salary, does that mean automatic increases will be used for minimum wage, too?" Lotito questioned.

He noted that wage and hour issues are emotional. Supporters of automatic adjustments argue that the formal rulemaking processes and surrounding discussions about salary and minimum wage are time-consuming and that it would be better to have some certainty built into the rules so that resources can be spent elsewhere.

"Maybe that's something for Congress to decide," Lotito said.

What's Next?

"I think we'll see a notice of proposed rulemaking and a new proposed salary level relatively soon," Robinson said, noting that the department has a lot of comments to sift through but that many of the comments were similar in content.

One challenge is that the Wage and Hour Division doesn't have all of its political appointees in place. "It would be nice to have the new wage and hour administrator on board with whatever the proposed rule is going to be," Lotito said, but he noted that Acosta has expressed interest and urgency in getting a new notice of rulemaking out. He thinks the notice may come in the first quarter of the new year and that a new rule may be finalized by the end of 2018.

Employers, trade associations and employee interest groups should be prepared to weigh in on a new proposed salary level, Robinson said.

 

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