Labor Department Wants To More Than Double Salary Level Exempt Status Test In Order To “Reward Hard Work.”

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By:  Julia Turner Baumhart

 

Today’s banner headlining the U.S. Department of Labor website reads “Rewarding Hard Work” and invites us to “Meet Jason,” a shift manager at a local retail outlet.  Jason’s true purpose is not to introduce us to him, but really to introduce us all to the agency’s Notice of Proposed Rulemaking (NPRM) released the afternoon of June 29, 2015.  That NPRM seeks to more than double the current minimum salary-level test for the Executive-Administrative Professional or “white-collar” exemptions from the weekly current full-time salary of $455 or $23,660 annually to $921 weekly or $47,892 annually.  Moreover, under a built-in annual “adjustment,” these new rates are already obsolete and would automatically increase upon regulatory adoption to an annualized minimum salary of $49,452 for 2015 and a projected $50,440 in 2016.  The weekly minimum for the Motion Picture Industry exemption would increase from $695 to $1,404.  And the minimum salary level qualifying an individual for the Highly Compensated Employee (HCE) exemption would similarly increase from $100,000 annually to $122,148, with a similar annual adjustment provision.  The automatic adjustments are designed to keep the minimum salary at a level equivalent to the 40th percentile for all full-time salaried employees overall, or, for the HCE exemption, at the 90th percentile.

The proposed regulations and other comments sought by the NPRM flow from a March 13, 2014 Presidential Memorandum directing the agency to provide definition as to which white collar employees should benefit from the FLSA’s minimum wage and overtime protections.  The stated objective of the NPRM is “to update the salary level [test] to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees, thus making the EAP [Executive-Administrative-Professional] exemption easier for employers and workers to understand.”

Projections within the NPRM vary widely, with estimates of how many of 43 million current white collar salaried employees will be impacted ranging from 4.6 million to approximately 21 million.  The agency estimates the overall income gain to employees overall to be $1.18 billion to $1.27 billion annually, which the agency further projects will be partially offset by reduced litigation costs due to “simplified” exemption tests.  The agency admits, however, there will be a loss in overall hours worked, meaning there will be fewer full-time employees due to the increased costs to employers.

And the exemption tests will not be simplified at all.  The only real proposed change is the momentual increase in salary levels.  There are no proposed regulations making changes to either the “salaried basis” test or the existing “duties tests.” All exemptions still must pass these other two tests.  And while the NPRM invites comment on possible changes to the duties tests, the potential changes on which it seeks comment would make the tests more complicated rather than simpler.  For example, the NPRM invites comments on the following:

  • Should the Department of Labor look to the State of California’s law (requiring that 50% of an employee’s time be spent exclusively on his or her primary duties) as a model?
  • Should the Department consider bringing back something like the long duties test that it discarded as unnecessary and overly complicated in 2004?

The proposals in the NPRM come primarily from in-person and telephonic “listening sessions” conducted by the agency hosting advocates for employers and employees.  Unfortunately, it appears that only two proposals from employer representatives were included in the NPRM – (1) that future regulations include more examples of specific occupations that fall within a particular exemption; and (2) that nondiscretionary bonuses be counted as salary.  Comments on those issues, as well as on the significant salary increases and automatic adjustments, should be submitted during the 60-day comment period.  Comments may be submitted electronically to http://www.regulations.gov, by referencing U.S. Department of Labor RIN 1235.AA11.  

This e-blast was written by Julia Turner Baumhart, who is a member of the Detroit SHRM Legal Affairs Committee.  Ms. Baumhart is a partner in the labor and employment firm of Kienbaum Opperwall Hardy & Pelton, P.L.C. in Birmingham, Michigan and can be contacted at jbaumhart@kohp.com or (248) 645-0000.  

Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article. July 2015.