Stakeholders weigh in on the Department of Labor’s proposed overtime rule.
The DOL’s proposed overtime rule, released March 7, was a long time coming, and with news that the NPRM had made its way to the White House for review, stakeholders were poised and eager to see how the agency’s latest iteration would differ from the DOL’s 2016 final rule struck down by a federal court. The current rule, with a more measured salary-level increase, seemed to have reassured anxious employers, while rankling employee advocates who slammed the administration for rescinding the far more aggressive Obama-era proposal.
Here, a look at the initial reaction to the DOL rulemaking:
A “vast improvement” over Obama rule. Trey Kovacs, labor policy analyst at The Competitive Enterprise Institute (CEI), deemed the latest proposed rule a “vast improvement” over the invalidated Obama rule, noting that the $35,000 salary threshold “is in line with past increases to salary threshold and is far closer to achieving the modest purpose of the test than the Obama overtime rule.” (Kovacs submitted comments on behalf of the free-market think tank in response to the DOL’s request for information.).
Kovacs was pleased the DOL scrapped “two of the more toxic elements” in the 2016 rule: the multiple salary thresholds based on regional cost-of-living differences—which he called an “administrative nightmare”; and the proposed periodic automatic increases to the salary threshold, much reviled by employers. Stepping away from that provision was “a prudent decision given that it is legally dubious and an idea that has been dismissed by past administrations,” according to Kovacs.
Still, he voiced concerns over a proposal in the latest NPRM to evaluate the salary threshold more frequently and to perhaps increase the floor through rulemaking.
“While there may be good reasons to update the overtime salary threshold more often, [the] current statute already requires the DOL to submit a biennial report to Congress that evaluates and appraises the effects of minimum wage and overtime requirements and present recommendations to prevent curtailment of employment opportunities,” Kovacs noted, yet the DOL apparently does not regularly produce this report, as required, or regularly analyze the impact of statutory overtime requirements. “If the DOL produced this report regularly, it would inform the agency as to when the purpose of the salary threshold had eroded and was in need of updating.”
Impact on employers. Ryan Mick, a partner in Dorsey & Whitney’s labor and employment practice, anticipates the proposed rule will have a significant impact on companies. “Employers who recall the feeling of panic when the Obama administration issued its Final Rule doubling the salary basis threshold in May 2016 will breathe a sigh of relief over the much smaller increase proposed by the Department of Labor. In fact, for many larger employers, or employers that made changes to comply with the 2016 Final Rule before it was enjoined, yesterday’s announcement will be a non-event. Nonetheless, yesterday’s proposed rule will still have a significant impact on many businesses, as the Department of Labor estimates that more than 1 million employees will have to receive pay raises in 2020 or become eligible for overtime. Small and medium-sized businesses may bear the brunt of that impact,” according to Mick.
“Employers will also be relieved that the Department of Labor did not propose changes to the duties tests for exemptions under the FLSA, which would have required many employers to undertake a far more complex analysis to determine exempt status for many employees.”
Toeing the party line. “The Trump administration is proposing a responsible increase to the salary threshold for overtime pay,” said Senate labor committee Chairman Lamar Alexander (R-Tenn.), in a statement released following issuance of the NPRM. “This proposal would also ensure that workers and employers have input on future changes. The Obama administration’s rule—which was blocked by a federal judge—would have reduced workers’ hours and advancement opportunities, taken money out of students’ pockets, and made it even harder for employers to grow and create more jobs,” he claimed.
Alexander had introduced a Congressional Review Act resolution in 2016, along with Sen. Tim Scott (R-SC) to block the Obama rule.
In contrast, Rep. Bobby Scott (D-Va.), chair of the House education and labor committee, issued a statement contending the new salary threshold “falls far short of meeting the needs of workers who are struggling to get ahead” and calling the new rule “a missed opportunity to implement significant reforms to ensure that workers are compensated for all of the hours they work.”
“While some people will see benefits under the new threshold, the proposal would exclude millions of workers who would have benefited under the 2016 Obama administration rule, which would have increased the threshold to nearly $50,000,” Scott said. “If the Department follows through with their proposal to deny millions of workers overtime protections, then Congress must act to set an adequate standard,” Scott signaled.
“This proposed overtime threshold, coupled with the lag of federal action to raise the minimum wage, has the effect of condemning American workers into poverty. I will continue to fight to advance policies that will bring workers out of poverty and build a thriving middle-class.”
“$35,000 isn’t nearly enough.” Employee advocates argued the new salary threshold was far too little. Working Washington, a worker advocacy organization that has been pushing to restore overtime rights in Washington state, lamented the “paltry $35,000/year— about 2.3 times what a full-time worker paid the federal minimum wage would make per year.”
“If the minimum wage is the minimum a worker has to be paid for an hour’s work, then the overtime threshold is the minimum a worker has to be paid in order to work endless hours without additional pay,” explained Rachel Lauter, Working Washington’s Executive Director. “That’s quite literally what the salary threshold for overtime exemption means,” Lauter said. “And a salary of $35,000 isn’t nearly enough money to be working for free.”
Lauter cited a number of statistics demonstrating how far workers have fallen in recent decades with respect to overtime pay. Among them: In the mid-1970s, about 60% of salaried workers got overtime pay when they worked overtime. Now less than 10% do—and it’s not because we’re working less. The average salaried workers reports putting in 49 hours a week; 25% of salaried workers report 60-hour workweeks.
“The average salaried worker puts in 49 hours a week and doesn’t get paid an additional dime of overtime pay when they work overtime hours—but most salaried workers at food, retail, office, nonprofits, and other jobs aren’t looking for hundreds of hours of overtime pay. They’re simply looking to have their time back so they can be with their families, contribute to their communities, get some rest, and just live their lives. But they also know that the only way to get employers to respect their time is if they have to pay for it,” Lauter said. “The Trump administration’s new overtime rule has failed to do what’s necessary to restore overtime rights to salaried workers and bring back the 40-hour workweek.”
“A slap in the face.” According to Christine Owens, director of the National Employment Law Project (NELP), “the Labor Department’s decision to revisit and revise the overtime rule is a slap in the face to millions of workers all across America who waited years to be paid fairly for their overtime hours.”
“In 2016, the Obama Labor Department finalized a regulation that would have provided automatic overtime coverage to any worker making less than $47,476 per year in 2016—a salary level that would have increased to $51,064 by 2019 and is projected to increase to $55,068 by 2022.”
The 2016 regulation was supported by rigorous economic analysis, Owens noted, and “it would have meant that about a third of the salaried workforce would receive the protections of our nation’s overtime laws—a far cry from the more than 65 percent who were covered in the 1970s, but far better than the less than 7 percent presently covered.” But the Trump DOL walked it back, setting a threshold favored by business lobbyists, she noted—questioning “who does the Labor Department really work for?” NELP urged the DOL to rescind its new proposal “and instead fight to implement stronger protections.”
“Stick with the 2016 rule.” “We strongly oppose this and any efforts to weaken the criteria set forth in the 2016 final rule for defining who qualifies for exemption from overtime protections. DOL does not need to undertake a new rulemaking—they just need to defend the 2016 rule, and support middle-class workers who badly need a raise,” said Heidi Shierholz, Senior Economist and Director of Policy at the Economic Policy Institute (EPI), a liberal policy organization.
Adopting the recently proposed rule “would leave behind millions of workers who would have gotten overtime protections under the 2016 guidelines,” Shierholz, noted, pressing the DOL to defend the 2016 rule, which was promulgated following exhaustive rulemaking over two years with input from more than 200 stakeholders on both sides of the issue. In her view, the 2016 rule “was by no means overly expansive,” despite its detractors. “In fact,” Shierholz pointed out, “it covered far fewer workers than the threshold had covered historically.
“In 1975, more than 60 percent of full-time salaried workers earned below the threshold. By 2016, the share of workers covered had dropped to less than 7 percent. The 2016 rule would have only partially restored this coverage, to roughly 33 percent. If the rule had simply been adjusted for inflation since 1975, today it would be over $55,000.”
Yet the current rule provides “a dramatically lower” salary floor. “A preliminary calculation suggests that well over half of the workers who would have gotten new or strengthened overtime protections under the 2016 rule would be left behind by this rule,” Shierholz said. “That means this administration is effectively turning its back on millions of workers. Trump and his cabinet are again siding with corporate interests over those of working people.”
Worker advocates look to the states. NELP urged state leaders to step in “to protect workers in their states from the Trump overtime rollback.” Owens pointed to California and New York, which are currently phasing in higher overtime thresholds, as well as Pennsylvania and Washington on their heels. After a year-long rulemaking process, Washington’s Department of Labor & Industries is expected to release a draft state rule imminently, Lauter notes. The agency indicated it will phase-in an increase in the state threshold to somewhere between 2 times the state minimum wage (about $56,000/year in 2020) and 2.5 times the state minimum wage (about $70,000/year).
Similar proposals have been introduced in more states, Owens added.
“Employers should not forget that the Department of Labor’s proposed rule has no bearing on state law,” cautions Dorsey & Whitney’s Mick. “If applicable state law imposes a higher minimum salary requirement or a more onerous duties test, employers in that state must continue to comply with state law.”
The rule’s prospects. Next up, the comment period, and a final rule to follow. How soon until the heightened salary threshold takes effect? That will depend in no small measure on the extent to which the final rule will face legal challenge, from either side. The DOL anticipates it will take effect January 2020; the administration surely hopes to get this one under its belt before the coming election raises the prospect of the rule’s undoing.
Yet, “there will be lawsuits,” Jeffrey M. Hirsch, University of North Carolina School of Law, predicted on the Workplace Prof blog. “Some will argue that the increase in salary goes too far, while others will argue that the rule still makes it too easy to exempt employees. Expect mixed messages from the district courts, which parties will handpick to try to get more favorable rulings. The key, therefore, will be to wait for the appeals courts to step in.
“So, we should see something of a final word on the final rule in, I’d guess, a couple of years from now,” Hirsch speculates.
Meanwhile… How are employers to respond to the NPRM? There are a number of options: Convert salaried employees making less than $35, 308 per year to hourly workers; raise their salaries; adjust their pay rate and reallocate regular wages and overtime to keep their total compensation largely the same; or limit their overtime hours to keep payroll costs under control. But haste is not called for.
“You’ve got lots of time to prepare for the final rule,” said Fisher Broyles’ Eric B. Meyer, urging employers to take deliberate speed on his The Employer Handbook blog. “However, don’t sleep on making sure that employees are currently classified correctly (exempt versus non-exempt; employee versus independent contractor; etc.). If ever there was a time to involve an employment lawyer in your HR and business planning, this is the one. Violations of the FLSA carry stiff penalties and often result in class/collective action litigation.”
“If we’ve learned anything from the Overtime Rule 1.0 it is that this is a process,” notes Fisher Phillips attorney Caroline J. Brown on the firm’s Wage and Hour Laws Blog. “Do not run out and make changes tomorrow based on a proposal, but do start evaluating what 2020 might look like if this is what USDOL ultimately adopts.”
Some employers conservatively made changes in anticipation of the $913 per week threshold, so even if the Final Rule is higher than $679 per week these employers are in good shape,” Brown added. “Many other employers still have a leg up in that they undertook detailed analyses (including duties) of their exempt-classified employees in 2016 and likely already know where to focus this time around.”
“Overtime Rule 1.0 was a painfully long process for employers, said Brown. “While we hope there will be tweaks in the Final Rule (the proposal contains some of the same flaws as Overtime Rule 1.0), Overtime Rule 2.0 was written with the benefit of all the prior feedback and litigation. As a result, we can expect a quick turnaround, comparatively, from the government. What remains to be seen is what interested parties might do once there is a Final Rule, but that is a few months out.”
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