DOL Asks if Multiple Salary Levels for Overtime Exemptions Are a Good Idea

Request for information also seeks reaction to automatic updates of overtime rule

By Allen Smith, J.D. Jul 26, 2017
LIKE SAVE PRINT
Reuse Permissions

​The Department of Labor (DOL) suggested more complex alternatives to the blocked overtime rule of the Obama administration in its July 25 request for information (RFI) on overtime. These alternatives include having multiple standard salary levels for white-collar exemptions from overtime, adjusted for the varying costs of living across different parts of the United States.

The DOL issued the RFI, published in the July 26 Federal Register, in preparation for drafting a proposed rule on the white-collar overtime exemptions. The use of an RFI in the rulemaking process is optional but the DOL chose this option rather than immediately publishing a proposed rule in light of pending litigation over the 2016 overtime rule.

"Employing a cost-of-living-based salary test certainly would address a number of the concerns raised by employers in the previous go-round," said Alexander Passantino, an attorney with Seyfarth Shaw and former acting administrator of the DOL's Wage and Hour Division. "A salary level that works for New York [City] or D.C. does not necessarily work for the rural South. Because of the way the duties test works in connection with the salary, however, the reverse is not necessarily true. The salary is a screening mechanism; if it is low enough to ensure we are not inappropriately screening out exempt employees in the rural South, it likewise serves that function in New York [City]."

However, Passantino said the DOL will have difficulty creating the different salary levels because it will be challenging to establish the regulatory framework to determine where an employee works. "Imagine a company incorporated in Delaware with headquarters in New York, a regional office in Denver, a field supervisor working out of his home in Santa Fe, who services a district covering El Paso, Texas, to Phoenix," he hypothesized. "Then imagine he spends half his time in the Denver office and half his time working out of his home." The DOL would need to provide guidance on how to apply the proper salary level, which would be much more challenging for the department than setting one standard salary level. The multiple standard salary levels are "a great idea in principle—somewhat difficult in application," he said.

Steven Suflas, an attorney with Ballard Spahr in Cherry Hill, N.J., and Denver, said multiple standard salary levels would, on the one hand, "appear to be more equitable by taking into account local standards of living. But, on the other hand, it would make compliance for employers, especially national employers, more difficult, as salary levels could vary region by region or location by location. This new initiative would also appear to be inconsistent with the new administration's stated policy of simplifying federal regulation."

Multiple standard salary levels "could result in some positions and employees being classified differently in different regions of the country even though they perform the same job duties," said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former acting administrator of the Wage and Hour Division.

However, Jeffrey Brecher, an attorney with Jackson Lewis in Melville, N.Y., said, "One of the criticisms of the original final rule was that it established a salary level that more than doubled the prior salary level and took no consideration for differences in salary levels among geographic areas. So setting a standard salary level that makes adjustments based on geographic location makes sense. Employers are used to variations in salary levels at the state-law level, so this is something the DOL will likely give serious consideration."

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

Background on Overtime Rule

A district court in Texas blocked the Obama administration's overtime rule, which would have raised the salary threshold from $23,660 to $47,476, last November. The Trump administration abandoned the Labor Department's initial appeal of the court striking down the $47,476 salary threshold, but appealed the decision's conclusion that the DOL did not have the authority to set a salary threshold.

Under the 2004 salary-level test of $455 per week, the white-collar exemptions from overtime excluded the bottom 20 percent of salaried employees in the South and in the retail industry. In the same rule, the DOL established a new test for "highly compensated employees." If an employee earned at least $100,000 a year, he or she needed to satisfy only a minimal duties test for exemption. To be exempt, other employees' jobs must primarily involve executive, administrative or professional duties in addition to meeting the standard salary level.

Under the blocked 2016 standard salary-level test of $913 per week, the white-collar exemptions excluded the bottom 40 percent of salaried workers in the lowest-wage region (currently the South). The 2016 overtime rule also raised the highly compensated employee exemption annual salary from $100,000 to $134,004.

RFI Questions

The DOL noted in its RFI that it intends to undertake further rulemaking to determine what the salary level should be. It added that gathering public input on the following questions will aid in the development of a notice of proposed rulemaking:

  • Should the regulations contain multiple standard salary levels? If so, how should these levels be set: by size of employer, census region, census division, state, metropolitan statistical area or some other method?
  • Should there be multiple total annual compensation levels for the highly compensated employee exemption?
  • Would updating the 2004 salary level for inflation be appropriate and, if so, what measure of inflation should be used?
  • Should the standard salary level and the highly compensated employee total annual compensation level be automatically updated on a periodic basis?

Passantino called the automatic increase "a terrible idea," noting that there wouldn't be a normal notice-and-comment rulemaking period in which to provide comments that the increase shouldn't take place. "Someone performing clearly exempt duties should not suddenly become nonexempt on January 1 because the company is on a noncalendar fiscal year and she doesn't get a raise until March 1," he said.

Robinson said it was the DOL's job to define and delimit the white-collar exemptions from time to time and that responsibility includes reviewing actual salary data and proposing new salary levels. He said he opposed the automatic increase in the 2016 overtime rule and hopes "the new administration will correct that 2016 rule by not including it in its rulemaking."

But Suflas noted that a key criticism of the current rule is that the salary levels have not been adjusted in a timely manner. "As a result, the current [2004] standard falls below the poverty line for a family of four. It makes practical sense to add an automatic periodic adjustment tied to the cost of living in order to prevent the salary level from once again becoming unreasonably low due to the passage of time and the slow pace of the regulatory process."

 

Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more. Join/Renew Now and let SHRM help you work smarter.

LIKE SAVE PRINT
Reuse Permissions

SHRM WEBCASTS

Choose from dozens of free webcasts on the most timely HR topics.

Register Today

Job Finder

Find an HR Job Near You
Post a Job

SPONSOR OFFERS

Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 3,200 companies

Search & Connect