SHRM: Exempt Overtime Threshold Should Be Nearly $32,000

2004 overtime regulation methodology should be used again, SHRM says

By Allen Smith, J.D. Sep 28, 2017
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​The Society for Human Resource Management (SHRM) supports a moderate increase in the minimum salary threshold above which workers are exempt from overtime pay. An increase to nearly $32,000 annually should be enacted, according to the Society's Sept. 25 comments to the Department of Labor (DOL) in response to the Wage and Hour Division's July request for information.

However, some of the more than 160,000 commenters favor a higher threshold—$47,476 per year—that the DOL tried to enact in 2016. Earlier this year, a court struck down that rule.

"SHRM welcomes DOL's re-examination of the overtime rule," said Nancy Hammer, SHRM senior government affairs policy counsel. "We believe an increase in the threshold is long overdue and are encouraged that our members' input can help DOL arrive at a more workable threshold."

SHRM had opposed the overtime rule that was finalized in 2016 but blocked by a Texas district court Aug. 31. That rule would have more than doubled—from $23,660 to $47,476—the minimum annual salary required to qualify for the Fair Labor Standards Act's white-collar exemption. The weekly salary threshold would have risen from $455 per week to $913 per week.

2004 Methodology Endorsed

In its comments, SHRM urged the department to use the same methodology to update the salary level that it used in its 2004 rule, which was the last time the DOL changed the exempt salary level. At that time, it set the level at the 20th percentile of salaried employees in the lowest wage region (the South), resulting in the $23,660 minimum salary level.

In its comments, the U.S. Chamber of Commerce estimated that applying this methodology would result in a minimum salary level of $612 per week or $31,824 per year. This amount would function only to screen out obviously nonexempt employees, the chamber wrote.

The Partnership to Protect Workplace Opportunity (PPWO), which has both SHRM and the chamber as members, also called for the exempt salary level to be at the 20th percentile.

"The PPWO's comments provide the department with a road map of how to responsibly set a new salary threshold," said Lisa Horn, SHRM director of congressional affairs and co-chair of the PPWO. "Having the support of 128 organizations that joined this effort is a strong endorsement for this path forward." Those organizations include the American Staffing Association, Associated Builders and Contractors, the College and University Professional Association for Human Resources, the National Association of Manufacturers, the Retail Industry Leaders Association, and WorldatWork.

"Ultimately, the PPWO's comments reflect a consensus among employers that the [struck down] 2016 salary increase went too far, too fast. The comments seek to inform the department's efforts to set a new salary threshold in an economically responsible way," said the author of the PPWO's comments, Alexander Passantino, an attorney with Seyfarth Shaw in Washington, D.C., and former acting administrator of the Wage and Hour Division.

State Attorneys General, Others Support $913 Per Week Level

However, New York Attorney General Eric Schneiderman and the attorneys general from California, Delaware, Illinois, Iowa, Maryland, Massachusetts, Vermont and Washington filed comments in support of raising the executive, administrative and professional exemptions' salary threshold to $913 a week.

Otherwise, they believe, workers who should be classified as nonexempt may not be. They could include first-line supervisors at fast-food stores, car washes, retail stores and construction sites; clerical and office workers; medical and dental technicians; midlevel IT employees; and film and television production assistants, a release from Schneiderman's office said.

The Center for American Progress also wrote in support of the 2016 level, calling any new rulemaking unnecessary and a threat to working Americans. As an example of what prior presidents had done, the center said the Ford administration set the overtime salary threshold at a level that would amount to $58,000 today, which covered more than 50 percent of all workers in 1975.

In its comments, the AFL-CIO noted that it was not satisfied with the original proposal by the DOL of the Obama administration to raise the exempt salary threshold to $50,440 per year. This proposed amount "was not sufficient to restore overtime protections that had been eroded over the previous four decades," the union stated.

Automatic Increases Opposed

SHRM does not support automatic updates to the exempt salary threshold, saying they would cause salary compression. After several years of mandated salary-level increases, the gap in pay between more senior and less senior, more experienced and less experienced, and more productive and less productive employees will become smaller, creating morale problems, SHRM stated.

In addition, while national average salaries may continue to rise, that does not mean all salaries in all industries and all regions will increase at the same pace.

The PPWO also opposed automatic increases, saying that the DOL lacks the authority to create them without going through the entire rulemaking process for each increase. "The department cannot avoid its obligations to engage in notice-and-comment rulemaking simply because notice-and- comment rulemaking takes time and resources," the PPWO wrote.

Automatic increases can occur when the economy cannot tolerate such changes, noted Robert Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich.

Steven Suflas, an attorney with Ballard Spahr in Denver and Cherry Hill, N.J., said that if the DOL does not automatically increase the exempt salary level, it should more frequently update it. Otherwise, the level again will—like the current $455 per-week level—likely fall below the federal poverty line.

Don't Change the Duties Tests

In addition to earning at least the exempt salary threshold, employees must meet the duties tests for the white-collar exemptions to be exempt. SHRM said that the current duties tests should not change.

[SHRM members-only HR form: Fair Labor Standards Act (FLSA) exemption questionnaire]

The DOL also should continue to not require exempt employees to spend a majority of their time on exempt tasks, SHRM stated.

However, Suflas cautioned that many state wage and hour laws apply overtime exemptions only to employees who spend a majority of their time on exempt tasks.

 

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