U.S. Department of Labor s Proposed New Overtime Exemption Regulations. Jason C. Schwartz January 26, 2015 (202)

Transcription

1 U.S. Department of Labor s Proposed New Overtime Exemption Regulations Jason C. Schwartz January 26, 2015 (202) jschwartz@gibsondunn.com

2 The White Collar Exemption Regulations Executive, Administrative, Professional, Outside Sales Secretary has authority to define and delimit Basic elements of test Salary basis Salary level ($455/week; $23,660) (except designated occupations) Duties Alternative test for highly compensated ($100,000) Last revised in 2004 FLSA does not preempt stricter state laws 2

3 Meet Jason (quoted from Jason has worked his way up to become a shift manager as part of the management team at a retail store in his town, helping lead a team of 40 employees. Married with two children, Jason struggles to pay the bills and provide the basic necessities for his family, even with a dual-income household. Even though he works more than 40 hours a week, he does not qualify for overtime. Jason is working harder and harder, but still struggling to help his family make ends meet. 3

4 Meet Jason (quoted from When Jason was young, his father worked full time, but didn t have the same struggles. That s because Jason s father qualified for and was paid overtime when he worked more than 40 hours per week, and was able to make enough to afford the basics for his family. The rules that establish which workers are exempt from overtime pay haven t kept up with the cost of living. Today, certain professionals and managers are exempt from overtime if they make more than $23,660 a year and perform specific duties. This is less than the poverty threshold for a family of four. 4

5 Meet Jason (quoted from Without updating the white collar exemption, salaried employees like Jason will continue to not make overtime even when they work over 40 hours per week. This just doesn t make sense and it s time to do something about it. That s why President Obama directed the Labor Department to update the regulations regarding who qualifies for overtime protection, ensuring hard work pays for more Americans. By updating the overtime rules, we re ensuring a fair day s pay for a fair day s work. This would mean more time with his family and more money in his pocket and others just like him who are working hard and deserve to be rewarded for their work. 5

6 Stakeholder Meetings Many employer stakeholders stated that they consider first-line managerial positions to be the gateway to developing their future senior managers and organizational leadership. A number of these employer stakeholders also raised concerns about changing currently exempt employees to nonexempt employees as a result of an increase in the salary requirement, stating that employees are attached to the perceived higher status of being in exempt salaried positions, and value the time flexibility and steady income that comes with such positions. These stakeholders also stressed the need for flexibility under the regulations, in particular emphasizing the value they place on a work culture that encourages managers to lead by example and pitch in to assist nonexempt employees. 6

7 Stakeholder Meetings Stakeholders representing employees stressed that employees in management positions who are required to spend disproportionate amounts of time performing routine nonexempt tasks (ringing up customers, stocking shelves, bussing tables, cleaning stores and restaurants, etc., alongside or in place of front line workers) are not bona fide executives and do not, in fact, enjoy the flexibility and status traditionally associated with such positions.... 7

8 Notice of Proposed Rulemaking Salary level Highly compensated employees salary level Automatic updating of salary levels Other areas for comment Costs include transfer payments when income is redistributed from one party to another 8

9 Salary Level $455/$23,660 would increase to $970/$50, th percentile for full-time salaried workers nationwide $970/week; $50, was 20% based on South and retail NPRM corrects long-test error BK example: lower paid assistant managers ('04 method) 2016 (NPRM) 9

10 Highly Compensated Employees Salary Level $100,000 would increase to $122, th percentile for full-time salaried workers $122,148 Update from 2004 using CPI-U would be $123,000 10

11 Automatic Updating of Salary Levels Two options for automatic annual adjustment proposed: Maintain fixed percentage of full-time salaried workers (40% and 90%); OR Adjust per CPI-U (measure of average change over time in the prices paid by urban consumers for a set basket of consumer goods and services) Comment sought on both options and on date (anniversary, Jan. 1?) and frequency (annual?) of updates 11

12 Duties Tests No specific change proposed; comments solicited Employee stakeholders asserted that some businesses, particularly in the retail industry, have built into their business model having exempt store managers perform significant amounts of nonexempt work in order to keep labor costs down. The Department is concerned that employees in lower-level management positions may be classified as exempt... even though they are spending a significant amount of their work time performing nonexempt work. While the regulations provide that exempt executives can perform exempt duties concurrently with nonexempt duties, this rule can be difficult to apply and can lead to varying results. (Citing Family Dollar cases.) 12

13 Duties Tests [A] salary level significantly below the 40 th percentile would necessitate a more robust duties test. Comments sought: What, if any, changes should be made to the duties tests? Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be? Should the Department look to the State of California s law (requiring that 50 percent of an employee s time be spent exclusively on work that is the employee s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee s time worked a better indicator of the realities of the workplace today? 13

14 Duties Tests Comments sought: Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure? Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are lower-level executive employees performing nonexempt work? 14

15 Duties Tests Comments sought: The Department agrees that examples of how the general executive, administrative and professional exemption criteria may apply to specific occupations are useful to the regulated community and seeks comments on what specific additional examples of nonexempt and exempt occupations would be most helpful to include. Help desk operator (nonexempt) vs. information technology specialist (exempt) 15

16 Nondiscretionary Bonuses Whether to permit nondiscretionary bonuses and incentive payments to count toward partial satisfaction of the salary level test what industries have these pay arrangements types of nondiscretionary compensation to what extent including these would advance or hinder test s ability to serve as a dividing line between exempt and nonexempt Whether payment on monthly basis is appropriate interval Whether 10% is appropriate limit Whether to include commissions (inclined against) 16

17 Off-Hours Electronic Device Usage Off hours electronic device usage beyond the scope of this rulemaking but DOL will publish a Request for Information in the near future. 17

18 Next Steps Comments were due on or before September 4, ,371 comments received Retailer issues Final rule likely 2016 Regulatory agenda July 2016 ABA late 2016 Self-assessment? Litigation? Fissured workplace joint employment guidance Offers of judgment 18