DOL Seeks Input Before Issuing New Proposed Rulemaking on the White Collar Exemptions

On July 25, 2017, the Department of Labor's Wage and Hour Division announced its intent to publish a Request for Information (RFI) seeking input from the public before issuing revised proposed overtime exemption regulations to address, most significantly, the minimum salary level required for exempt status. These regulations apply to workers employed in an executive, administrative or professional capacity, and meet specific criteria relating to salary basis, salary level and job duties. The regulations, codified at 29 C.F.R. part 541, are referred to as the “white collar” exemptions.

Section 13(a)(1) of the Fair Labor Standards Act (FLSA) expressly delegates to the Secretary of Labor the power to define and delimit the terms of the Act through regulation. In 2016, the Department revised the regulations to increase the salary level for overtime-exempt employees from $455 per week to $913 per week. The Department also established a mechanism for automatically updating the salary level every three years and modified the regulations to allow for nondiscretionary bonuses and incentive payments to satisfy up to 10% of the standard salary test. The Department made no changes to the duties tests.

Before the regulations went into effect, however, a district court enjoined implementation. See Nevada et al. v. U.S. Dep’t of Labor et al., 218 F.Supp. 3d 520, 534 (E.D. Tex. 2016). The Department of Justice, on behalf of the DOL, appealed the injunction and the appeal is pending before the U.S. Court of Appeals for the Fifth Circuit. In its briefing, and reiterated in the RFI, the Department states it has “decided not to advocate for the specific salary level ($913 per week) set in the 2016 Final Rule at this time.” Rather than proceeding immediately to a notice of proposed rulemaking to determine what the salary level should be, given the pending litigation, the Department is seeking public comment and information.

Consistent with Executive Order 13777, “Enforcing the Regulatory Reform Agenda,” which tasks federal agencies with identifying “regulations for repeal, replacement or modification,” the Department is issuing the RFI to assist in reviewing the impact of the 2016 regulations with a “focus on lowering regulatory burden.” In seeking public comment, the Department acknowledges stakeholder concerns that the salary level set in the 2016 regulations “was too high.” The Department invites comments on the 2016 revisions, and seeks comments and information relating to these questions:

1.         Using 2004 Methodology: Would updating the 2004 salary level for inflation (which excluded from the exemption roughly the bottom 20% of salaried employees in the South and in the retail industry) be the appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used?  Would applying the 2004 methodology to the current salary data be appropriate?  Would setting the salary level using either method require changes to the standard duties test and, if so, what changes should be made?

2.         Setting Multiple Standard Salary Levels: Should the regulations contain multiple standard salary levels and, if so, how should they be set (e.g., size of employer, census region or division, state, metropolitan statistical area, etc.).  Were different salary levels set, what would the impact be on particular regions or industries or multi-state employers?

3.         Setting Different Salary Levels for Exemptions: Should the Department set a lower salary for executive and administrative employees and a higher salary for professional employees? (as done from 1963-2004).  If so, what would the impact be on employers and employees?

4.         Updating the Long- and Short-Test Salary Levels:  Should the standard salary level be set within the historical range of the pre-2004 short-test salary level, the pre-2004 long-test salary level, somewhere between the two or based on another methodology?  Would changes to the duties test be needed if one methodology was used?

5.         The Importance of the Salary Level Versus the Duties Test: Does the standard salary level set in the 2016 Final Rule work effectively with the standard duties test or does it eclipse the role of the duties test in determining the exemption status?  At what salary level does the duties test no longer carry the same historical role?

6.         Response and Impact of the 2016 Final Rule:  To what extent did employers, in anticipation of the 2016 Final Rule, increase salaries, convert workers’ pay from salaries to hourly wages, decrease newly non-exempt employees’ hours, or change policies to either limit employee flexibility or track work performed?  What was the impact (economic and non-economic) on the workplace and did small businesses or other small entities encounter any unique challenges to prepare for the 2016 Final Rule?  Did employers make any additional changes (e.g., reverting back to salaries) after the preliminary injunction was issued?

7.         Eliminating the Salary Basis Test:  Would a test for exemption that relies solely on duties – without regard to salary – be preferable?  If so, what would the requirements be and should there be an examination of non-exempt work performed?

8.         Impact of 2016 Final Rule:  Does the salary level set in the 2016 Final Rule exclude particular occupations traditionally covered by an exemption and, if so, what occupations?  Do employees in these occupations perform more than 20% or 40% non-exempt work per week?

9.         Use of Non-Discretionary Bonuses and Incentives:  Is the 10% level of non-discretionary bonuses, incentive payments, commissions, etc. set forth by the 2016 Final Rule an appropriate limit or should the regulations use a different percentage cap?  Is the standard salary level relevant in determining whether – and to what extent – such additional payments should be credited?

10.       Setting Multiple Compensation Levels for the Highly Compensated Employee Exemption:  Should different levels be set?  If so, how?  (e.g., by size of employer, census region or division, state, metropolitan statistical area, etc.).  Should the regulations set different compensation levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for varying cost-of-living rates?  What impact would different compensation levels for the highly compensated employee exemption have on particular regions or industries?

11.       Automatic Updates:  Should automatic increases be used?  What is the mechanism, should they be delayed in periods of negative economic growth and what should the time period be between updates?

Interested parties have until September 25, 2017, to submit comments. The DOL encourages interested parties to submit the comments electronically through the Federal eRulemaking Portal:  Written submissions should be directed to Melissa Smith, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S- 3502, 200 Constitution Avenue NW, Washington, DC 20210.

If you are interested in submitting comments and need assistance, we recommend that you reach out to trade associations or Littler’s Workplace Policy Institute® (WPI™).

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.