United States: How Far USDOL's "Overtime Rule" Has Come, And How Far It Has Left To Go

The comment period for USDOL's most recent proposal regarding the Fair Labor Standards Act's white-collar exemptions (Overtime Rule 2.0) has closed. You probably have heard that the proposed salary level test is "too high" and "too low", and it all feels a bit like déjà vu. In actuality there have been some notable improvements up to this point, though hopefully more to come before finalization.

The Rule Has Continued To Evolve

We've written at length about the prior version (Overtime Rule 1.0), the related injunction, subsequent stakeholder feedback, and the history of how we got here. Though we cannot say USDOL went back to the drawing board to propose a new rule this year, it is clear from the agency's accompanying comments and some of the provisions that it considered the various views and endeavored to resolve the most controversial aspects of Overtime Rule 1.0 in drafting at least an improved rule.

To the credit of both administrations, the 2015 proposed rule was the last variation that truly contemplated a change to the duties tests, multiple thresholds, or annual updates. The 2016 Final Rule under the Obama administration, wisely, did not include any of these in the end, nor are they in the Trump administration's current proposal.  (A return to these debates would surely put the entire matter back at square one.)

The current proposal also is an improvement over 2016 in that USDOL now:

  • Proposes a return to the 2004 methodology, which is said to support a $679 per week salary level test more in line with the test's stated purpose.
  • Proposes extending the period for the 10% "credit" from a "quarter" to a more practical 52 weeks.
  • States the agency's intention that updates occur no more frequently than every 4 years, at least marginally more practical.
  • States the agency's intention that each future update would be subject to the rulemaking process and the agency would be left some discretion to delay increases based on economic factors.

In other words, while it is not a whole new proposed rule, it is a vastly improved one, particularly because it does not put future analyses on "auto-pilot". Nonetheless, some of the finer points still require USDOL's further consideration.

Where the Proposal Misses the Mark

Putting aside that Fisher Phillips has for decades taken the position that the compensation requirement is improper, the following are some of the other points that the firm's Comments reiterate in hopes that USDOL will publish a final version of Overtime Rule 2.0 that is valid, practical to apply, and aligned with the deregulation initiative.

  • The agency must ensure that it uses the proper data and selects the lowest salary level that fulfills the purpose while avoiding the complications caused by multiple levels (based on any factor). Indeed, an employer seeking "certainty" or "efficiency" in its analysis always is free to draw higher lines for a specific context (the nature of the work, industry, locale, compensation level of coworkers, additional benefits, etc.). If USDOL wants to draw an across-the-board line to promote its own efficiency, the proper solution would be to draw a line above which it will presume an employee's exempt status is proper as an enforcement position.
  • USDOL still is contemplating a schedule regarding the salary level, according to the statements accompanying the proposed rule. Notably, USDOL should at most plan to determine on a more regular basis whether the salary level test is "significantly outdated". Care should be taken to avoid not only the salary level test eclipsing the duties test, but effectively directing the market by prompting reactive/preemption compensation decisions.
  • In light of the confusion caused by the 10% "credit", the agency should confirm for all that the compensation requirement must simply be met in cash, or its equivalent. Employers have long used incentive pay, paid leave, and other payments to meet the predetermined amount agreed upon by the parties. The only limitation for purposes of the white-collar exemptions is that "board, lodging or other facilities may not count towards the minimum salary amounts required for exemption". 29 C.F.R. §  541.606, § 531.1 et. seq.  Moreover, USDOL should scrap the 10% "credit", or better articulate whether/how it relates to each test within the compensation requirement.
  • At a minimum, employers should have sufficient time to adjust their budgets, if necessary, well before the beginning of their fiscal year. We have recommended a 12-months-notice period going forward and a phase-in approach for the initial (still significant) update.
  • We also asked that USDOL clarify other issues related to the salary basis concept, including explicitly stating where contrary inferences are not appropriate.

 While there is a tendency for a government to continue regulating an area once it has inserted itself, it is a flawed rationale to continue to do so here simply because it has (although not always) been done in the past.  Strikingly, even our alternative recommendations go quite a ways towards deregulation with respect to a white-collar-exempt-employee's wages.  Of course, completely eliminating the compensation requirement would not only ensure that USDOL has acted within its authority under 29 U.S.C. § 213(a) as well as make the application of exemptions easier, it might just be the greatest means for educating all that being paid a "salary" is not "the" test.

Why Those Calling For A Higher Salary Level Test Are, Candidly, Wrong

Of course, some stakeholders continue to advocate for a higher salary level test, that incentive pay should be excluded from the test, and even for a fully automated update process. The difference is that our recommendations are based on USDOL's actual task and other practical matters within its scope of authority.

USDOL is authorized to, in fact has been directed to, define the white-collar exemptions: executive, administrative, professional, and outside sales. In doing so, Congress did not include a compensation requirement. Unlike, for example, the 3(m) tip credit or the 7(i) exemption from overtime, the statutory text at 29 U.S.C. § 213(a) makes no reference to any percentage or multiple of the minimum wage when it comes to the white-collar exemptions. It was decades before USDOL introduced the white-collar exemptions' (other than for outside sales) compensation requirement.  Since then the "salary level" and the "salary basis" concept have been conflated, their original purposes sometimes mischaracterized, and they have, in many instances, overshadowed the duties tests significantly.

At bottom, these exemptions are reserved for executive, administrative, and professional employees such that the compensation requirement is only an additional requirement that, ironically, should become more redundant the more accurately the salary level test is set. A low figure cannot make someone exempt. A high figure though (or really any figure) can make at least someone unqualified, and thus, non-exempt. Congress has not tasked USDOL with narrowing the set of exempt employees or providing a minimum compensation. At the end of the day, USDOL's job is to actually define the terms, which generally requires a description of the work that qualifies. Indeed, even the highly-compensated employee variation of these exemptions requires that the employee meet certain duties in recognition of the fact that compensation cannot be determinative.

At each round, so to speak, advocates of a higher salary level have presented a variety of opinions that boil down to an idealistic, perceived concept of "fairness" to employees. Laudable as that might sound, "fairness" is not the question posed to USDOL here. Setting the salary level stems from a different principle (i.e., identifying those employees highly unlikely to meet the duties tests). Even setting the figure at half of what is somehow deemed "fair" is clearly beyond the agency's authority if it would result in a significant number of otherwise-exempt employees losing that status.

The Bottom Line

Whatever the USDOL does next, it must uphold its responsibility to define the terms executive, administrative, and professional (as well as outside sales) in meaningful ways, which prohibits it from improperly emphasizing the compensation requirement.

In the meantime, the good news is that the agency has presented the rule three times now under two different administrations and never actually set forth a change to the duties tests. Accordingly, employers can be reasonably certain that the next publication will not include changes to the duties tests.  This means an employer can determine the largest set of exempt-classified employees now – again, the salary level test only can serve to narrow it – and start planning now for the potential changes to the salary level test.  Many have gone through this before, but we would caution those employers to review the company's updated compensation data and consider how the jobs might have changed since the last review.

Stay tuned as we follow the progress of the proposed rule, which we expect to proceed relatively quickly.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions