October 17, 2019 | Time and Attendance | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis
Final FLSA Revisions Announced...but is the Saga Finally Over?
On September 24, 2019, the Department of Labor issued a Notice of Proposed Rulemaking (NPRM), announcing final regulations modifying overtime rules to raise the minimum salary threshold for the Fair Labor Standard Act’s so-called “white collar exemption” from $455 per week to $684 per week (or from $23,660 per year to $35,568 per year), effective January 1, 2020. The question that employers must be asking themselves at this point is: “Is this four-year saga finally over?”
On May 23, 2016, the Obama administration Department of Labor proposed revising the white collar exemption level for the first time since 2004, when it was set to $455 per week. The $455 value was derived by tracking to the value of the 20th percentile of the lowest-wage US Census region at the time – the Southern US. The new rule proposed by the prior Administration would have reset the value from the 20th to the 40th percentile of that lowest wage Census region, and would have more than doubled the value from $455 per week to $913 per week ($47,476 per year). Additionally, the 2016 proposed Final Rule would have made these changes to the salary test without making any changes to the “standard duties test,” would have raised the Highly Compensated Employee (“HCE”) threshold from $100,000 to $147,414, and would have put in place an automatic escalator for both the white collar exemption and the HCE limit, which would have revised those values every three years. The proposed effective date of that rule was December 1, 2016, with the first automatic escalator taking effect January 1, 2020.
Without any intervening actions by employers to reclassify or change employees’ wages in response to the proposed rule, it was estimated to impact approximately 4.2 million employees nationwide, reclassifying them from FLSA-exempt to non-exempt (eligible for overtime under the law).
On November 22, 2016, just nine days before it was to take effect, federal court Judge Amos Mazzant of the Eastern District Court of Texas blocked implementation of the changes, siding with 21 states and several business associations and against the Obama Administration DOL. Judge Mazzant’s ruling indicated that the proposed revision was drastic, forming a de facto “salary-only test” (since the duties tests were not touched) and that Congress never intended to give that much control over these provisions to the DOL. On August 31, 2017, the same federal district court granted summary judgement to the plaintiff states and business associations, effectively permanently enjoining the proposed rule from taking effect.
On March 22, 2019, the Trump Administration DOL, under then-Secretary Alex Acosta, issued a new Notice of Proposed Rule Making, centering around the intention to raise the white collar exemption test from $455 per week to $684 per week – significantly lower than the $913 per week limit proposed by the prior Administration.
Additionally, the latest FLSA revision proposal:
- The rule provides for one threshold regardless of exemption, industry, or locality, subject to a few exceptions that already existed.
- Employers will be permitted to credit certain non-discretionary payments in limited ways.
- The highly compensated employee definition will be set to $107,432 per year – again, significantly lower than the $147,414 value proposed by the prior Administration.
- No changes are being made to the “duties” tests.
- No change has been made to the various other exemptions (for example, outside sales) that do not specifically include a salary requirement even if the employee happens to earn a salary.
- There will be no “automatic” updates, -- this was an aspect of the previously proposed changes that were heavily criticized by the Mazzant Court as exceeding executive branch authority.
Without any intervening actions by employers to reclassify or change employees’ wages in response to the proposed rule, it is now estimated to impact approximately 1.2 million employees nationwide, significantly fewer than the prior proposed rule.
What’s an Employer to Do Now?
Many employers are reacting with the same question right about now: should we plan to comply with this new proposal, or will it be challenged in court as well? After all, as the old saying goes: “we’ve seen this movie before!...”
There are several reasons why it appears that this time the proposed FLSA amendment may stick. First of all, there hasn’t been an adjustment to the white collar salary threshold or the highly compensated limit in 15 years – since 2004. Secondly, the newly proposed increases are much more modest than those proposed under the prior Administration. And while employers may point out that the administrative burden of complying with ANY change is pretty much the same, the federal district court which struck down the previous proposal never really took that issue into account in rendering their opinion. Indeed, Judge Mazzant’s main objection to the proposed changes last time had to do with the Executive Branch exceeding their authority (in the Court’s opinion) by failing to modify the Duties test in coordination with more than doubling the salary basis, and by attempting to “implant” automatic future escalators in the limit. This new proposal by the DOL appears to avoid both of those problems. For more about these issues, see this excellent analysis by Fisher Phillips.
So while there may be challenges, once again, to this new proposal, the chances of them being successful in setting asides these changes are perceived by many experts to be lower than in the previous litigation cycle. Employers are well-advised to (a.) resurrect the work they did in preparing for these changes back in 2016, with an eye toward reviewing everything (job duties, salary levels in 2019, etc.) to be ready for a January 1, 2020 effective date for these rules, or (b.) get started on the job and compensation reviews necessary to stay in compliance next year.
We’ll keep you updated on any new developments on these regulations!
Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)