PPWO Notes Challenges Overtime Rule Is Having on Students, Schools and Others
The upcoming Labor Day weekend unofficially marks the end of summer and the start of another school year. This year as students, schools, and others make final back-to-school preparations, they also need to grapple with fewer resources and less flexibility as a result of the sudden and massive changes to the workplace caused by Department of Labor’s final overtime rule.
The Department of Labor’s May 18 rule increases the salary threshold under which most employees must be paid overtime from $23,660 to $47,476. A 100 percent increase on December 1st this year is too much, too fast. In order to ensure every employee is paid for every hour worked, the rule requires employers to adjust. Employers will do so by possibly reclassifying millions of employees from salaried to hourly overnight. These employees will be on the clock and their employers will have to closely track and manage their hours leaving them with less autonomy and flexibility. These changes will also strain resources from school systems and higher education institutions that will be forced to reclassify a variety of non-teaching personnel such as school nurses, counselors, resident assistants, researchers and coaches.
“Millions of employers, including school systems, colleges and universities, have made it clear that the new overtime regulations will result in severe consequences when it goes into effect on December 1,” said Lisa Horn, Co-Chair of the Partnership to Protect Workplace Opportunity. Horn continued, “The clock is ticking for employers and employees, so we urge Congress to move quickly to provide much needed relief to the nation’s educational institutions, small businesses, nonprofits, and local governments—all of which have expressed concern over the damage such a rule would inflict.”
The PPWO applauds the bipartisan efforts underway in Congress to address the overtime rule. The Partnership continues to support the Protecting Workplace Advancement and Opportunity Act (S. 2707/H.R. 4773) and the Overtime Reform and Enhancement Act (H.R. 5813).
At a Senate labor appropriations subcommittee hearing, Sen. Alexander asked Labor Dept. Secretary Thomas Perez about the department’s proposed overtime rule. Quoting a letter from a group of independent colleges in Tennessee, Alexander said, “One of our members calculated that the first year impact would translate to a $1,000 per student increase in tuition … It’s expected that the change will cost each four-year campus a minimum of $1. 3 million. Another rural campus noted the change would impact 133 employees for a total of 3.2 million dollars.”
Alexander, who chairs the Senate’s labor committee, then asked Perez that at a time when the administration talks about keeping “college costs down, how can you justify an overtime rule that might raise the cost of college by $1,000 per student?”
On February 12, Chairman John Kline of the House Education and Workforce Committee and Chairman Tim Walberg of the Subcommittee on Workforce Protections sent a letter to Labor Secretary Thomas Perez requesting documentation detailing the Department of Labor’s outreach efforts prior to publishing its proposed overtime rule.
The lawmakers have asked this information to be submitted to the Committee no later than February 29, 2016.
You can read the full letter HERE.
Over the past two weeks, the Partnership to Protect Workplace Opportunity delivered to the Wage and Hour Division of the U.S. Department of Labor 534 comments requesting a 60-day extension to the comment period on the Department’s proposed rulemaking altering the overtime requirements under the Fair Labor Standards Act. Employers from a variety of different companies, organizations, and higher education institutions submitted the comments, demonstrating that businesses and nonprofits across the country understand the serious consequences this proposal will have and that the current time period does not provide adequate time to analyze the rulemaking.
Only extensive outreach will get the Department to extend the comment period. Please continue to reach out to your members of Congress and the Department through our grassroots portal.
Small Business Administration
Office of Advocacy
Regional Roundtable on
DOL’s Overtime Regulations
Thursday, July 16, 2015, 2:00–4:00PM (EST)
Room: Bluegrass I-II
280 West Jefferson
Louisville, Kentucky 40202
Dear Small Business Representatives:
The Office of Advocacy of the Small Business Administration invites you to a Small Business Regional Roundtable to discuss the Department of Labor’s Overtime Regulations. On June 30, 2015, the Department of Labor’s Wage and Hour Division released a proposed rule that revises the overtime regulations under the Fair Labor Standards Act, specifically the “white collar” exemption from overtime pay for executive, administrative and professional employees. Public comments are due to DOL on Sept. 6, 2015 (approximate date).
Please RSVP by reply email if you plan to attend the meeting to: Janis.Reyes@sba.gov or call at 202-619-0312. Please RSVP as soon as possible, as space is extremely limited.
Some details of the proposed rule by DOL are as follows:
Mary Ziegler, Director, Division of Regulations, Legislation and Interpretation, from the Department of Labor will provide a brief description of this new regulation. In addition, SBA representatives have also been invited to discuss their programs.
Please note that during the roundtable we will not be seeking any collective consensus on these issues and that comments made during this roundtable will not be considered official comments in this rulemaking process. However, Advocacy is seeking feedback from you on the number and types of small businesses likely to be affected by this rulemaking, the compliance costs of this rule to these small businesses, and any significant regulatory alternatives that may minimize the impacts of this rule.
For more information on the proposed rule:
Advocacy is an independent voice for small business within the federal government, the watchdog for the Regulatory Flexibility Act (RFA) and the source of small business statistics. Advocacy advances the views and concerns of small business before Congress, the White House, the federal agencies, the federal courts and state policy makers. Advocacy takes its direction from small businesses and hosts roundtables to receive input on what areas are of greatest importance. Roundtable meetings are open to all interested persons, with the exception of the press, in order to facilitate an open and frank discussion about small business-related issues. Agendas and presentations are available to all, including the press. Anyone who would like to receive roundtable agendas or presentations, or be included in the regular distribution, should forward such requests to email@example.com. The purpose of these roundtable meetings is to exchange opinions, facts, and information and to obtain the attendees’ individual views and opinions regarding small business concerns. The meetings are not intended to communicate or achieve any consensus positions of the attendees.
On June 30, 2015, the U.S. Department of Labor released its long-awaited proposed rules making some drastic changes to the way overtime exemptions are applied under the Fair Labor Standards Act. Under rules last updated in 2004, a worker earning at least $455 per week ($23,660 annualized salary) is exempt from federal overtime requirements assuming the worker meets the “duties” component of a particular exemption such as the executive, administrative, or professional exemption. The proposed rule more than doubles that minimum salary to $921 per week ($47,892 annualized salary).
On the surface, this adjustment seems like a boon for American workers. It is being reported that this new rule would make an additional 5 million workers eligible for overtime pay. And, the administration is selling the new rule as a way to put more money in workers’ pockets and to ensure that the economic pie is more equitably shared between labor and management. Labor Secretary Tom Perez is even calling the new rule a $1.5 billion raise for American workers! Ironically, however, while the rule would make more employees eligible for overtime pay, it might result in workers being worse off than before.
Other than requiring the payment of the minimum wage, federal (or for that matter state) law does not regulate the wage rate employers must pay employees. That rate, instead, is set by the parties’ agreement. While that agreement could be enshrined in a written contract, for most workers their wage rate is set by the employer announcing what the rate will be. Absent a contract, the rate can be changed at anytime — up or down. Just as it is not unlawful for an employer to raise a worker’s salary — it is equally lawful for an employer to reduce a worker’s salary.
Thus, to comply with the new overtime rule an employer would have a number of options. It could, of course, raise workers’ wages to meet the new minimum salary to maintain the overtime exemption. Alternatively, it could leave workers’ salaries where they are and pay overtime premiums for hours worked over forty in a workweek. Both of those reactions would benefit employees with higher take-home pay or at minimum more hours of leisure time at the same salary. What a deal! With the mere wave of the administrative wand, workers will earn more money and have more free time. It sounds almost too good to be true. And it is. Employers need not react to the new rule with such generosity. Instead, employers could react in at least two ways that would leave workers worse off than before the new rules.
First, an employer could simply reduce an employee’s salary such that when the overtime premium is paid the worker makes the same as before. For example, imagine a store manager who is paid a $500 weekly salary and who regularly works 50 hours a week, 10 hours of which considered overtime hours. Under the new rules, that manager would be entitled to overtime and would, if the employer did not adjust salary, earn an additional $50 per week. Magic! But, not so fast. By reducing the manager’s salary to $450 per week, the manager under the new rules earns only $495 per week after overtime is calculated.
Thus, the employer pays no more, the manager earns no more, and the manager works no less. That of course assumes that the manager worked at least 10 hours of overtime. If she did not, she would not be entitled to overtime and would actually earn less because coming up to her former salary now requires that she works 10 hours of overtime.
Second, an employer could comply with the new rule by converting salaried workers to hourly workers. Let’s revisit our store manager. Prior to the rule change, she was effectively earning $10 per hour ($500 per week for 50 hours worked). By converting her to an hourly employee and setting her hourly rate at $9.10 per hour, the employer would pay $500.50 for the same 50 hours of work. Never mind the $.50 in additional pretax weekly earning, our manager would be in a much worse position. As an hourly worker, she would now be punching a time clock and only be paid for hours she actually clocked. If she had to leave to run an errand or to pick a sick child up from school early, she would not be paid for that time. Not only that, she would lose the status usually associated with salaried work, as opposed to hourly work.
Thus, this new rule would incentivize employers to take away the flexibility, stability, and notability that come from earning a guaranteed weekly salary and to replace it with the uncertainty of an hourly wage. And, that trade off could come with little or no additional take home pay for the employee.
But don’t just take my word for it. The Department of Labor’s own Notice of Proposed Rule Making explains how this is a real possibility for some workers. While certainly not every employer will be inclined to react this way out of either loyalty to her employees or inability because of a tight labor market, many employers focused on maintaining profits will react this way and there would be nothing unlawful about it.
No one doubts the nobility of President Obama and his Department of Labor’s attempt to help American workers provide for their families. On the surface, this proposed rule looks like it requires employers to share more of the economic pie with their workers. That is certainly how it is being sold today. But, what is being billed as great deal for working Americans may turn out to be something much less. As if often the case, there is no such thing as a free lunch (or slice of the pie).
Mr. Mastrosimone is an Associate Professor of Law at Washburn University School of Law in Topeka, Kansas, which was recently ranked number 24 in the nation for full-time attorney job placement.. He teaches labor law, employment law, and legal research and writing in Washburn’s often nationally ranked legal research and writing program. Prior to teaching, he was the Chief Legal Counsel for the Kansas Human Rights Commission, legal counsel at the National Labor Relations Board, and represented management in labor and employment disputes at two national law firms.
Authored by Alex Passantino
Today, the U.S. Department of Labor’s Wage & Hour Division announced its long-awaited proposal to amend 29 CFR Part 541, the “white collar” exemption for executive, administrative, and professional employees. Somewhat surprisingly, the Division only made specific proposals with respect to the salary levels required for the exemption and the highly-compensated exemption. In 2016, which is when the salary increase would be expected, the standard salary is projected to be $970 per week or $50,440 per year, indexed to the 40th percentile of weekly earnings for full-time salaried workers; the highly-compensated employee standard would be set at $122,148, indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers. Given the size of the increase, even California and New York employers will need to be more alert to federal wage and hour compliance.
As has always been the case, the proposed salary levels would not apply to individuals employed as outside sales employees. Similarly, lawyers, doctors, and teachers are excluded from the proposed salary requirements.
The effort to amend these regulations began over a year ago, when President Obama directed Secretary of Labor Perez to consider whether revisions to the regulations were appropriate. The proposed rule has been under review at the White House’s Office of Information and Regulatory Affairs since May 5, 2015, and President Obama is expected to discuss the proposal at an event scheduled for this Thursday, July 2, in Wisconsin. We expect publication in the Federal Register shortly. Employers (and the entire regulated community) will have 60 days to provide their comments on the proposal.
Since last year, there has been rampant speculation about what the proposed rule would—and would not—contain. At long last, we now know. An increase to the standard salary test, indexed to the 40th percentile of weekly earnings for full-time salaried workers, and an increase to the highly-compensated employee salary, indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers. In other words, the rule proposes to perpetually increase the salary levels required on an annual basis.
What the rule does not contain is any specific proposal with respect to duties. Instead, WHD asks for comments on the following questions:
WHD also asks whether there are specific occupations for which it should provide additional examples in the regulatory language. In addition, WHD asks whether (and how) nondiscretionary bonuses might be used to satisfy the standard salary level.
WHD’s decision to use questions to address the duties test is somewhat unique for an Notice of Proposed Rulemaking. Presumably, WHD will use responses to the questions to formulate its positions in a final rule, which deprives the regulated community of any ability to meaningfully comment on a proposal—it’s a moving target.
Despite the fairly limited scope of the rulemaking, it is important to note that the salary levels are proposals. In 2003, when the Department last proposed revisions to the white-collar exemptions, the Department received 75,280 comments during the 90-day comment period. We can expect similar participation this time around. All of the comments will need to be reviewed by the Department, and issues raised by the comments will need to be considered and addressed. As a result, the final regulations may be different from the proposal in any number of respects. Moreover, given the scope of the proposal and the anticipated volume of comments, it is highly unlikely that the Department will be able to get a final rule completed in less than a year. In all probability, compliance with any ultimate revisions to the regulations will not be necessary until summer or fall of 2016.
What the Proposed Regulatory Revisions Mean for Employers
The current minimum salary level of $455 per week translates to $23,660 per year. This level was established in 2004, and represented a significant increase from the $155 per week ($8,060 per year) minimum that had been the standard for the preceding 30 years.
Just over 10 years removed from the last salary increase, the proposed rule expects to set a new threshold of $970 per week ($50,440 per year) in 2016. Initial estimates indicate that a salary increase to $50,400 per year would impact 5-10 million workers, many of whom are concentrated in the retail and hospitality industries. Some other estimates believe the number of impacted employees is more likely to be in the range of 15 million. Although the impact of this salary increase will almost certainly have a larger impact in Southern states and rural areas than it would in the Northeast and metropolitan areas, because the new salary minimum exceeds the California requirement of $37,440, even California employers will need to pay close attention to the federal exemption requirements.
Notably, this sizeable increase in the salary level makes it difficult to maintain part-time exempt positions. Under the current salary requirement, a part-time, pro-rated salary is sufficient to establish the exemption (provided that the pro-rated amount exceeds $455 per week). The new amount makes such an arrangement far more difficult, effectively eliminating some flexible workplace arrangements. If an employee’s pro-rated salary is not in excess of the new salary amount, that employee now needs to meticulously record his working hours, even if he never approaches 40 hours, because the FLSA’s “hours worked” recordkeeping obligations apply to all non-exempt employees.
In addition, WHD proposes to increase the highly-compensated employee standard. By its calculations, that figure is $122,148 for 2015. Neither the proposal nor WHD’s talking points indicate how much the salary would be in 2016 based on the proposed indexing.
Of course, the proposed salary is not necessarily the salary that will be required in the final regulation. In 2004, for example, the proposed salary was $30 per week lower than the salary in the final rule; the standard for highly compensated employees increased from $65,000 in the proposed rule to $100,000 in the final.
Notably, for the first time ever, the salary tests will include an automatic, annual increase, with the standard salary indexed to the 40th percentile of weekly earnings for full-time salaried workers, and the highly-compensated employee salary indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.
Clearly, the salary revisions that have been proposed will make a significant impact on an employer’s operations. Employers should now consider the impacts this proposal might have on their operations—and their bottom line. Although the salary levels will be the focus, employers should not forget about the questions posed by WHD—input is critical on these points as well. The public comment period is 60 days, and a robust regulatory record will allow the Department to best analyze the impacts its proposal will have on the economy. Thus, employers should seriously consider providing comments in response to the proposal. Seyfarth attorneys are already working with clients to do so and will be submitting comments on behalf of the firm.
Beyond the importance of providing comments, it will be necessary to begin preparing company executives and operations employees for these proposed changes. In just over a year, the proposed changes almost certainly will become final, in what we expect will largely be the same form as the proposal. The final changes are unlikely to provide a significant period of time to come into compliance—in 2004, employers only had 120 days to do so; we expect a shorter lead time next year.
With the expected lack of lead time, employers will need to start planning well in advance. For example, it will be necessary to budget for salary increases and/or increased overtime costs for at least part of 2016. In order to make informed decisions with respect to budgeting, employers will need to complete a preliminary assessment of the positions that may be impacted by the changes, and determine whether the duties performed by the positions would qualify for the exemption. Only then can the employer consider whether a salary increase is even an option.
Authored by Alex Passantino
According to a blog post by Secretary Perez, the Department of Labor has submitted its proposed rule to OMB for review. Typically, OMB review takes 30 to 60 days (or longer). On this timetable, DOL still may hit its most recent target of “Spring” for publication of a proposed rule.
While at OMB, the public has no details on the particulars. The specific provisions only will be revealed once the proposed rule clears OMB review and is published in the Federal Register.
We will, of course, keep you updated of further developments.
[Originally posted here.]
Authored by Alex Passantino
On Wednesday, Secretary of Labor Thomas E. Perez told a House committee that he hoped the Department’s proposed revisions to the white-collar overtime regulations would be published this Spring.
During a hearing of the House Education and Workforce Committee in which the topic was the President’s FY2016 budget request for the Department of Labor, Secretary Perez explained that the Department was “working overtime” on the proposal. He provided no further specifics on the proposed rule’s timing, other than a hope that the proposal would be completed in the coming months.
[Originally published here.]