Get Ready for the New Wage & Hour Regulations (Part 1)
By James T Stodd, SPHR, SHRM-SCP
June 29, 2015
You may, or may not, have heard, but change in the federal wage and hour laws is coming our way. And, it’s the kind of change that needs some proactive preparation. You see, over many months now, the US Department of Labor (DOL) has been working on revised regulations for classifying employees as salaried (exempt) or hourly (non-exempt). And while the new regulations have yet to be released, in early May these proposed regulations were submitted to the Office of Management and Budget (OMB) for final review prior to publication. That’s the last step prior to formal proposal for public review.
History
Only a few insiders really know what is in the new regulations, but experts have been speculating based upon the history behind these regulations. On March 13, 2014 President Obama signed a memorandum instructing the DOL to update regulations about who qualifies for “overtime” pay. In particular, he asked the DOL to raise the threshold for the salary-basis test from the current $455 per week ($23,660 per year) to a higher level, but he did not specify what that level may be. The second issue the President addressed is the primary duties tests associated with the executive, administrative and professional exemptions, which are frequently referred to as the “white-collar” exemptions.
Why has the President called for these regulatory revisions? In short, these changes are being introduced because of the President’s concern that many Americans are being left behind in the economic recovery. In his remarks, the President stated “Unfortunately, today, millions of Americans aren’t getting the extra pay they deserve. That’s because an exemption that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year.”
In making its case for these revised rules(1), the White House has argued that the exemption salary threshold has only been raised twice over the past 40 years. In 1975 it was raised to $250/week, and elevated again in 2004 to the current $455/wk. In addition, the White House went on to say that the $23,660 annual salary associated with the current minimum salary threshold is below today’s poverty line for a worker supporting a family of four, and well below the 1975 level when adjusted for inflation.
What Can We Expect?
Again, the details have not been released. But experts and insiders have been speculating on what these new regulations may contain, and it appears that state laws passed in California, New York, and other states, may be serving as models for the regulatory revision.
For instance, right now the minimum salary threshold for exemption in California is two times the state minimum wage for full-time employment(2). That minimum wage is currently $9.00/hour and will increase to $10.00/hour on January 1, 2016. Doing the math, the current minimum salary threshold for California is $37,440/year ($720/week), and will increase to $41,600 ($800/week) by the first of next year.
It is unlikely that the new minimum salary threshold established by the DOL will try to keep pace with the practices of states like California and New York. In fact, Tammy McCutchen, former administrator of the DOL’s Wage and Hour Division under President George W. Bush, speculated that a more reasonable increase would be a level in the low to mid $30,000 range.(3) However, the Economic Policy Institute has been advocating a threshold as high as $51,168 ($984/week),(4) and the Huffington Post5 has reported that as many as 30 members of congress have urged the President to “be bold” and set the annual threshold as high as $69,000 ($1,327/week).
In addition to meeting an elevated minimum salary threshold, we should expect stricter application of the “primary duties” tests that apply to the white-collar exemptions. Currently, these tests require that a job incumbent’s “primary duty” must be performing executive, professional, administrative, or other “exempt” duties before the exemption would apply, but otherwise the standard is rather vague. However, the states that are serving as a model for these revised regulations have stricter “quantitative” guidelines. Again, California requires that at least 50{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7} of the incumbent’s time must be spent performing “exempt” duties before the exemption would apply. It is expected that the revised federal regulations will likewise impose more stringent standards regarding the amount of time an incumbent performs exempt work, similar to those set by states like California and New York.
What Employers Should Do
Look for those suggestions in a forthcoming “Part 2” on this topic, which will be released in about a week.
1 The White House, Office of the Press Secretary, FACT SHEET: Opportunity for All: Rewarding Hard Work by Strengthening Overtime Protections, March 13, 2014.
2 CalChamber, Exempt Employees and Nonexempt Employees, http://www.calchamber.com/californiaemployment-law/pages/exempt-nonexempt-employees.aspx
3 Stephen Miller, CEBS, Get Ready to Reclassify Workers Under Forthcoming FLSA Regs, Society for Human Resource Management, March 24, 2015.
4 Economic Policy Institute (http://www.epi.org/publicaton/increasing-overtine-salary-threshold-family/) 5 Huffington Post (http://www.huffintonpost.com/2015/01/19/democrats-overtine-pay-obama_n_6488642.html)