March 12, 2019 | Payroll Software | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis
Proposal for FLSA Revisions to the “White-Collar Exemption” Is Back: What Can Employers Do Now?
As you may remember, in May 2016 the prior Presidential Administration put in place major revisions to the wage limit testing used as a bright line for FLSA non-exempt determination (sometimes referred to as the "white-collar" or EAP exemption). Since 2004, it's been $455 per week ($23,660 annually). The revision due to begin back in 2017, would have doubled that limit to $913 per week ($47,476 annually).
In November 2016, the US District Court for the Eastern District of Texas issued an injunction, declaring the Department of Labor (DOL) action invalid. In Judge Amos Mazzant’s final opinion invalidating the proposed changes in August 2017, he dimmed the bright-line test by ruling that a salary level alone could not be the basis of FLSA-exempt determination, and that job duties must always be considered. An appeal to the Fifth Circuit was held in abeyance by the Trump Administration, since they had no intention of defending the revisions at their proposed levels but did want to defend the DOL's right to make such changes.
The Department of Labor immediately announced that further guidance would be forthcoming, and earlier this week, they announced a proposal to "split the difference" and raise the limit to $679 per week ($35,308 annually). The estimated "capture rate" with automatic conversion from exempt to non-exempt based on this change would impact approximately 3.1 million workers nationwide. This compares to an estimated 4.2 million workers who would have been impacted by the previous Administration's more aggressive proposal.
The proposal also includes a provision to raise the so-called "Highly Compensated Employee" (HCE) limit, initialized at $100,000 in 2004 when introduced, and proposed in the Obama-era rules to rise to $134,004. The new proposal raises that limit to $147,414. The estimated exempt additional "capture rate" with automatic conversion from exempt to non-exempt on the basis of this change would be approximately 201,100 workers nationwide.
What’s the Current Status?
The status of this proposal is still very preliminary, and appears to have been intended in some part, according to some experts, to forestall Congressional action to "force the Administration's hand". (With the new Congress just last week passing a gradual move to $15 per hour for the minimum wage – the largest proposal in history – the idea of pre-empting Congress from weighing in with their own ideas about other worker protections might seem, to some, like a really good one!)
Once the proposal has been published in the Federal Register, that will begin a regulatory clock that includes a Notice of Proposed Rule-Making, 60-day public comment period, and Final Rule, at which point we will have an indication of the effective date of the new proposal.
What Employers Can Do Now
With the Administration weighing in with an official position on these revisions, some form of change now appears inevitable. Employers would be well-advised to examine their current job evaluation processes, with specific focus on the bases on which FLSA-exempt/non-exempt determinations are made, to determine what, if any, changes will be necessary for them to remain in compliance should the Administration’s proposal become reality.
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.)