Background

Currently, to qualify for the overtime exemption under the Fair Labor Standards Act (FLSA), an employee must be: (1) “employed in a bona fide executive, administrative, or professional (EAP) capacity,” (2) salaried; (3) paid more than the standard salary level threshold; and (4) satisfy a duties test.

Proposed overtime rule

Under the DOL’s proposed rule (see DOL Issues Long-Awaited Proposed Overtime Rules, 3/11/19), effective Jan. 1, 2020:

1. The standard salary level test threshold increases from $455 per week to $679 per week ($35,308 annually);
2. The highly compensated employee (HCE) total annual compensation level increases from $100,000 to $147,414 for employees that meet the EAP capacity; and
3. Nondiscretionary bonuses and incentive payments (including commissions) may satisfy up to 10% of the standard salary level test if the bonuses and payments are paid at least annually.

Common concerns

There are some common concerns expressed by employers about the proposed rule.

1. Cost of living varies based on geographic location. Employers argue that the standard salary level should be based on the geographic location of the employer due to varying cost of living amounts from one region in the nation to another.
2. Impact on nonprofit organizations. Employers in the non-profit sector expressed concern that due to their budgetary limits, their employees would be negatively impacted by the rule. One human resources director noted that the organization would be forced to “demote” salaried employees to hourly employees and adjust the rate of pay to their current salary level. Janet Reynolds of the Michigan Federation for Children and Families, which represents 53 member agencies, argued that the new salary level would increase the wage expenses of nonprofit organizations of up to 20%. Reynolds also noted that some of her member agencies are under multi-year contacts and do not have the “flexibility to cover increased costs.” Meredith Ciaccia of the Special Olympics suggested not only a lower standard salary level but a special phased in approach of over three to five years for non-profit organizations to allow them to raise funds to cover the additional costs. One commenter suggested an exemption for non-profit organizations altogether or at the very least, a postponed applicability date for organizations that provide services through Medicaid funding so Medicaid can adjust funding levels to meet the new salary threshold.
3. Impact on part-time exempt employees. Some employers suggested that the DOL permit proration of the minimum salary level for part-time exempt workers. It was noted that many healthcare workers work on a part-time basis. One commenter requested the DOL publish a daily rate based on the salary requirement divided by working days to address employers who do not employ workers 12 months out of the year.

Small employers

Unlike the challenge against the Obama-era proposed rule, the National Federation of Independent Business (NFIB), who represents 300,000 members comprised of small and independent business owners, is mostly in favor of the proposed rule, though NFIB would prefer the salary level threshold remain $455 per week. NFIB also expressed doubt that the salary level test is consistent with 29 USC 213(a)(1) of the FLSA.

Public campaign

Over 54,000 of the comments were the result of a public campaign against the proposed overtime rule. The comment template that was submitted to Regulations.gov supports the salary level threshold of $913 per week proposed in 2015 and opposes the proposed $679 per week level. The comment campaign notes that in 1975 the overtime salary threshold allowed more than 60% of full-time salaried workers to be eligible for overtime pay and notes that current levels are at 6%. The comment continues to assert that the $913 per week level would only cover 33% of full-time salaried workers. No information was provided in the comment campaign on how these figures were derived.

The comment period will close on May 21.

Regulations.gov, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, RIN: 1235-AA20