On March 22, 2019, the U.S. Department of Labor (DOL) released its proposed rule to raise the annual salary threshold for a worker to qualify as exempt under its “white collar” regulations from $23,660.00 to $35,308.00. The public comment period closed yesterday, May 21, 2019, with almost 60,000 comments from the business and worker communities.
History of the Proposed Rule
The road to a final rule over the salary threshold has been long and bumpy for the DOL. In 2014, President Obama directed the DOL to “update and modernize” the existing Fair Labor Standards Act’s (“FLSA”) white collar exemptions. Two years later, the DOL released its final rule revising the regulations by doubling the salary threshold to $47,476.00.
The final rule dramatically increased the number of workers who would qualify for overtime pay, forcing every employer in the country to carefully assess how to handle the additional financial burden. At the time, the DOL projected that the rule will extend overtime eligibility to 4.2 million workers. Closely thereafter, several national trade associations filed lawsuits to block the final rule which resulted in a nationwide injunction in 2016.
When the Trump Administration took office, DOL Secretary Acosta promised to review the rule and reissue it with a lower salary threshold to appease the business community which it did in March 2019.
Comments to the Proposed Rule
Many comments, including those from national trade associations, appreciated the DOL’s movement back to the methodology it uses under the rule currently in effect which calculates the salary threshold level at 20th percentile of earnings for full-time salaried workers in the South region and retail sector reflecting industry-specific as well as region-specific differences. Comments noted that this method of calculating the threshold level is important to develop a more practical income level that accounts for the economic realities of those in different industries, particularly in lower income areas of the country.
Some comments from the small business community noted that even a salary threshold of $35,000 was still too high and suggested a phase-in period to implement the change to to ensure that businesses have time to properly assess the projected expense and make decisions regarding implementation that will not threaten the continued viability of their companies. This alternative would meet the FLSA’s purpose of “creat[ing] a level playing field for businesses,” while also ensuring small businesses can take on the recognized added costs and remain viable.
Businesses also appreciated the DOL’s decision in the proposed rule not to modify the current duties test to assess applicability of the recognized exemptions. Changing to a quantitative assessment of time spent performing “non-exempt” tasks would require managers to constantly monitor how much time they are spending on individual tasks as well as the specific nature of the task being performed. Managers at all levels must often step in where necessary to ensure their workplace is run efficiently and serves the needs of its customers. For employers in the retail industry, for example, the most important duties of exempt employees remain their supervisory responsibilities, which they are performing even when cashing out a customer or restocking a shelf. Thus, the current duties test more accurately distinguishes between those who are truly hourly, non-exempt employees and exempt employees, who only occasionally perform non-exempt tasks.
Another aspect of the rule that was commented on was the DOL’s decision to permit employers to include up to 10% of non-discretionary bonuses toward meeting the threshold salary level. The DOL stated that it is limiting the amount of non-discretionary bonuses to 10% because it is “intended to identify a class of nonexempt employees” and “believes that employees with wages below the proposed standard salary level…do not typically receive a substantial portion of their wages through bonuses.” However, this determination does not account for the unique circumstances of employers in lower wage areas of the country. To remain viable, many such businesses must pay their employees a lower base wage that is supplemented by a larger bonus related to profitability that year. Thus, some businesses felt that the 10% cap was too low because it limits an employer’s discretion in choosing how to effectively allocate incentive pay to promote productivity and profitability, and a higher cap would give companies the latitude needed to remain as competitive in compensation as financially possible.
Now that the comment period has closed, the DOL will review and consider the various stakeholder comments before issuing a final rule and we will keep our readers apprised of any developments.