United States: First Look At The Department Of Labor's Proposed Overtime Regulation

After President Obama announced in an op-ed on Monday that it was coming soon, the US Department of Labor's Wage & Hour Division published its long-awaited proposed overtime regulation. This proposed regulation addresses the question of which executive, administrative and professional employees are exempt from the Fair Labor Standards Act's overtime (and minimum wage) protections.

Some estimates suggest that nearly 22 million workers are subject to being excluded from overtime protections under regulations promulgated by the Bush Administration in 2004. In a March 2013 memorandum to Secretary of Labor Tom Perez, President Obama directed the Labor Department to update the regulations, narrow the exemptions, and simplify the rules so that employers would be better able to comply.  This proposed regulation is an attempt to carry out that mandate.

The centerpiece of the proposal is an increase in the salary threshold for exempting executive, administrative and professional employees.  Under existing law, employees can earn as little as $455 per week and still be exempt.  Under the proposed rule, the threshold would be set at the 40th percentile of full-time salary workers, which is $951 ($49,452 for a full-year worker) now, or $970 ($50,440 for a full-year worker) in the first quarter of 2016.  The Labor Department estimates that roughly five million workers will be newly covered by federal overtime protections as a result of this change alone. Given that some advocates and Democratic members of Congress had been pushing for an increase to a threshold of $69,000 for a full-time worker, the proposed regulation seems to take a moderate position that almost returns the salary threshold to its inflation-adjusted level in 1975. The proposal would also index the new salary threshold to the Consumer Price Index or fix it at the level of the 40th percentile of full-time salary workers—in other words, the threshold would rise automatically as these measures increase.

The proposal also invites comments about how much time employees should have to spend on executive, administrative or professional work before they can be exempt.  Under existing rules, this "exempt" work is supposed to be the employee's "primary duty," but there is no bright line test for "primary."  Some courts have held that as little as 1 percent or 5 percent of an employee's time spent on exempt duties can be enough.  By contrast, the department's proposal asks commenters to consider California's rule that essentially says that "primary" means 50 percent or more of time is spent on executive, administrative or professional duties.

Apparently responding to strong objections from the employer community, and in an effort to keep the public's focus on the higher salary threshold, the department's proposal does not advance specific changes to the substantive duties that constitute the work of executive, administrative, or professional employees.  In order to be an executive, administrative, or professional employee, of course, the individual's job must consist of executive, administrative, or professional duties. Employers worry that changes to these substantive duties tests could result in a great deal of new litigation as they and their employees struggle to understand how to adapt jobs and job descriptions to new rules.  By contrast, the department predicts the increase in the salary threshold will reduce the amount of litigation because millions fewer workers will be subject to the duties test.  They will be covered by the overtime rules simply because of their salary levels.

In an uncommon turn for a formal proposed regulation, the department's proposal asks the public to express its views on the substantive duties tests without giving commenters anything to which they can react.  Because administrative law requires that the public (and the regulated community, in particular) have full notice and an opportunity to comment about significant changes to regulations, the lack of a specific proposal (or set of proposals) in this area likely means that the department's final regulation will not address these substantive duties tests.

The public has 60 days to comment on this proposed regulation, although you should expect a fight about whether more time will be allowed.  Unless Congress decides to kill the rule before it comes out, which is unlikely at this stage, you can expect a final overtime regulation around this time in 2016. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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