U.S. Department of Labor Proposes New Wage and Overtime Regulations

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On June 30, the Department of Labor (DOL) proposed new wage and overtime regulations under the Fair Labor Standards Act (FLSA) and is seeking comments by September 4, 2015.

DOL proposes to raise the salary threshold for an employee to be exempt from minimum wage and overtime pay to be equal to the 40th percentile of earnings for all full-time salaried workers in the United States. In 2015, this would equate to $970 per week, or $50,440 annually. Under the current regulations, an executive, administrative, or professional employee must be paid at least $455 per week ($23,660 per year) in order to qualify for the exemption.

The Department is also proposing to include a mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of wages or the Consumer Price Index for All Urban Consumers (CPI-U).

In the proposed rule, DOL also asks whether revisions to the “duties tests” are necessary in order to ensure that these tests fully reflect the purpose of the exemption.

On July 23, the U.S. House of Representatives Subcommittee on Workforce Protections held a hearing on the proposed rule.  Issues raised during the hearing include a number of the concerns raised by IPC members (discussed below).

Industry Concerns

IPC Government Relations (GR) committee members highlighted the following concerns:

• The proposed threshold is too high for entry level purchasing, manufacturing, and engineering
• The salary threshold may be inappropriate for rural, southern, and low cost of living areas.
• The proposed threshold would raise costs and is a direct formula for exporting work to lower cost of living countries

Background

On March 13, 2014, President Obama signed a Presidential Memorandum directing the DOL to update the regulations specify which workers are exempted from the FLSA’s minimum wage and overtime regulation.

Since 1940, the regulations implementing exemption for  executive and professional (EAP)  or “white collar” workers have required each of three tests to be met for the exemption to apply: (1) The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the  “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).

DOL believes that regularly updating the salary and compensation levels is the best method to ensure that these tests continue to provide an effective means of distinguishing between overtime-eligible employees and those who may be bona fide executive and professional (EAP) employees. DOL does not make specific proposals to modify the standard duties tests, but is seeking comments on whether the tests are working as intended to screen out employees who are not bona fide EAP employees.  In particular, the DOL is concerned that, in some instances, the current tests may allow exemption of employees who are performing such a disproportionate amount of nonexempt work.

Action and Next Steps

IPC has joined the Partnership to Protect Workplace Opportunity, a broad coalition of concerned parties with very similar concerns to those expressed by IPC members.   IPC may sign on to the partnership’s comments, or draft our own if our concerns differ significantly.

The partnership has requested an extension of the September 4 comment deadline in order to allow more robust data collection and time to review of the proposed rule.

Several coalition members testified at the July 23, 2015 Congressional hearing, and the partnership also submitted a statement for the record.  The partnership will be launching a grassroots campaignshortly; IPC members may wish to participate in addition to submitting comments.

IPC members with questions, comments, or an interest in reviewing the draft comments, should contact Fern Abrams, IPC director of regulatory affairs and government relations.