September 4, Dear Ms. Ziegler:

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1 September 4, 2015 Mary Ziegler, Director Division of Regulations, Legislation and Interpretation US Department of Labor 200 Constitution Avenue NW, Room S-3502 Washington, DC Re: DOL Proposed Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees RIN: 1235-AA11 [Submitted Electronically] Dear Ms. Ziegler: On behalf of Lutheran Services in America (LSA), thank you for the opportunity to comment on the proposed rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees that was published in the Federal Register on July 6, 2015 (RIN 1235-AA11). LSA is a nationwide network of more than 300 Lutheran health and human services organizations that touch the lives of one in 50 Americans each year. Our members serve a broad diversity of low-income, vulnerable people of all ages, faiths, and abilities, including seniors, the homeless, people with disabilities, veterans, children, youth, and families. To meet the distinct and collective needs of these people, LSA members provide a wide range of services, including health, supportive housing, employment, and preventive services. We appreciate that the Department s proposal is well intentioned, designed to increase the number of workers who receive overtime pay. While we agree it is important to ensure the regulations governing overtime protections keep pace with the evolving workplace and economy, we are cognizant of the significant impacts this drastic new wage and compensation structure would have on LSA member organizations and the individuals, families, and communities they serve. As faith-based, nonprofit, trusted providers in the community who serve the lowest income and most vulnerable people, our members largely rely on funding from local, state, and federal government sources. Since their founding, LSA members have been driven by a call to serve the people they walk alongside of and employ. These principles hold true today, as our members work diligently to provide quality services amid growing demand and decreased funding. However, current government reimbursement rates for the lowest income people we serve are inadequate to cover the costs LSA members incur in serving them. The proposed rule would exacerbate the situation, with unintended negative consequences for the individuals LSA members serve and the workers they employ the very people this proposed rule seeks to protect. 1 P a g e

2 DOL s proposal to more than double the overtime pay exemption threshold would place a massive new burden on our members, some of whom are the sole health and human services provider in their area. It would result in significant service cuts, program closures, and staffing reductions, negatively impacting those they serve and employ. In the pages that follow, we address these concerns in more detail, focusing on (1) The Salary Threshold and (2) Workforce Issues. We respectfully submit the following comments for your consideration: THE SALARY THRESHOLD In the comments below, we share more details on the impact of the proposed regulations and make recommendations for minimizing this disruption, such as requiring adequate government funding, setting the increase at a more reasonable percentile, and accounting for geographic variances in establishing the threshold. We also respond to the Department s request for input on its proposal to automatically adjust the salary level on an annual basis. Adequate Government Reimbursement Rates LSA members serve low-income people whose cost of care is often covered by Medicaid, making the Medicaid program a key source of funding for LSA members. Because Medicaid is a state-federal partnership, with rates set by states and matching funds contributed by the federal government, community-based providers do not have the ability to pass on increased operating costs to the state, the federal government, the individuals served, or any other entity. We are concerned that the proposed rule does not link its new wage requirements to the enhanced reimbursement rates nonprofit providers would need to implement it. In so doing, DOL s proposal is effectively an unfunded mandate, placing the sole onus for compliance on the financially constrained nonprofit provider. Imposing employer obligations without ensuring funding is available for implementation will render many providers unable to comply without reducing wages, services, or benefits. Without corresponding government program rate increases to cover the increased costs of the regulation, the proposed rule will have severe negative consequences for the families and individuals LSA members serve and employ. Recommendation: LSA recommends the Department work with other federal agencies to ensure adequate funding is in place to support the proposed regulation and nonprofit health and human service providers. We also recommend the threshold not be significantly increased unless and until adequate funding can be assured for publicly-funded providers to achieve compliance. Setting the Proposed Salary Threshold LSA shares the Department s goal of ensuring that workers are paid adequately and appropriately. LSA spoke with our members to better understand the potential implications of this rule. The overwhelming majority responded that they prioritize employee satisfaction and fair wages, but without increased government reimbursement rates to offset the proposed new costs, the threshold would present significant challenges to their ability to employ workers and provide services. 2 P a g e

3 Accordingly, we are concerned that more than doubling the current exemption threshold without simultaneously enhancing government contract rates would result in significant program and service cuts, harming LSA member organizations, employees, and beneficiaries. Recommendation: To mitigate these impacts, LSA recommends that if the salary level is increased, it should be done incrementally, and tied to a threshold that is significantly below the 40 th percentile of full-time salaried workers salaries. Accounting for Geographic Variances LSA is concerned that the proposed rule does not take into account regional variances in costs of living. This is problematic, as it would disproportionately impact workers, service providers, and beneficiaries in less prosperous areas where government reimbursement rates are correspondingly low. The federal government acknowledges this discrepancy, as it uses different pay tables for its employees based on geographic location, and DOL sets wage determination rates based on region for certain contractors. As the federal government already determines appropriate wages and other rates based on regional variances, it is reasonable for the Department to incorporate geographic variances in its final rule. Recommendation: We recommend a salary scale that is keyed to regional cost of living standards, similar to the Office of Personnel Management s General Schedule (GS), which takes locality into account to determine pay thresholds. Automatic Adjustments to the Salary Threshold LSA appreciates the intention of the Department to simplify the existing rules, in part by creating a mechanism to automatically update the threshold into perpetuity. However, the two methods on which the Department has requested comment present challenges. Basing Salary Threshold on Percentile - The proposed rule would set the salary threshold at the 40th percentile of full-time salaried workers salaries. Using percentiles rather than averages, there is the potential for significant discrepancies between the highest and lowest percentiles. If a significant number of employers simply do not raise salaries year over year, salaries would stay stagnant, impeding the Department s goal of providing a mechanism by which the salary threshold would adjust to benefit exempt workers. Conversely, if employers keep increasing salaries of exempt workers to just over the threshold, artificial inflation of the threshold would result, creating a skewed picture of appropriate salary levels. Basing Salary Threshold on an Inflation Index - The Department asked for comments on whether it would be more appropriate to tie the salary threshold to an inflation index rather than base it on national salary data. One issue with taking such an approach is that, as noted above in discussing regional cost variances, inflation does not impact all regions uniformly. Using the CPI-U would, by its very nature, not take into account the variance between rural and urban markets. Any inflation index that is an average of national data has this same weakness; it will disproportionally impact different regions, potentially worsening the income disparity in this country, and inadvertently harming the workers the rule seeks to protect. 3 P a g e

4 Moreover, linking the threshold to inflation would force employers into perennially raising salaries without any ability to raise state-determined payment rates or otherwise ensure revenue increases to offset these increases. Providers would be squeezed more tightly and many would be forced to close programs and lay off staff, resulting in fewer clients served and reduced access to critical health and human services for people in need. Recommendation: Between these two options, we recommend basing the threshold on percentile. As expressed in the previous section, we recommend this percentile be determined using regional salary data, in order to account for geographic variances. Additionally, we recommend that any increases in the salary threshold be accompanied by a requirement for a corresponding increase in government reimbursement rates to pay for the increase. WORKFORCE ISSUES As faith-based providers, LSA members understand the importance of providing adequate monetary compensation and quality benefits to attract, train, and retain a qualified workforce. However, under the proposed rule, many of our members will be unable to raise the salaries of all exempt workers, because there is not a corresponding government contract rate increase. With no additional funding to offset the new wage requirements, providers will need to explore strategies for compliance that both contain costs and minimize service disruption. This could include converting currently exempt salaried workers to hourly workers, prohibiting or significantly restricting permitted overtime, and shifting work currently performed by exempt workers to part-time and other non-exempt workers. The unfortunate potential consequences could include lower job satisfaction, higher turnover, and a further reduction in the pool of workers who choose to work in the nonprofit health and human services field, which is already understaffed. It may also result in layoffs; the lowering or elimination of raises; and lower wages, as employers may implement organization-wide wage decreases or benefit package reductions. Additionally, reclassifying workers from salaried to hourly may mean lower take-home pay, if the hourly wage is set to account for overtime, access to which is not guaranteed. This would leave providers with fewer employees working fewer hours - and therefore delivering fewer services to those most in need. In the comments that follow, we highlight the unintended consequences these changes could have on worker satisfaction, address non-salary benefits, propose an implementation timeline, and respond to the Department s request for input on the existing duties tests. Unintended Consequences on Worker Satisfaction and Turnover Rate When the overtime regulations were updated in 2004, many employees were reclassified from salaried exempt to non-exempt, causing a decline in employee morale, a loss of sense of workplace status and autonomy, and increased distrust between employers and employees. We are concerned the Department s proposed changes may encourage similar unintended consequences. Salaried workers are recognized by society as professionals, a sentiment Congress shared in creating the exemptions at issue in this rule. Many workers see a salary, rather than hourly wages, as the mark of a 4 P a g e

5 professional career. Therefore, converting salaried employees to hourly wage earners - even if the total amount of compensation remains the same - may have a negative impact on employee satisfaction. As one LSA member noted: Converting a segment of exempt employees to non-exempt employees would give them limited time, limited autonomy, and limited flexibility to perform their job duties, which were structured as exempt positions for maximum efficiency and work/life balance. Further, staff has expressed concerns that such a change from exempt to non-exempt status would feel like a demotion rather than recognition of their professional talents and achievements in working with clients. Recommendation: We encourage the Department to take these concerns and realities into consideration in promulgating a final rule. Accounting for the Value of Non-Salary Benefits The proposed salary threshold increase does not account for the value of non-salary benefits, including health benefits, retirement plan contributions, and other employer-sponsored benefits. Given the importance to worker satisfaction and overall economic stability that such benefits have, it is appropriate to consider an employee s total compensation rather than only take-home income. Recommendation: We recommend that for purposes of meeting the salary threshold, employee benefits received for which the employer bears the financial burden be included in the calculation of total salary. Implementation Timeline As stated elsewhere in these comments, we recommend that DOL refrain from issuing any final regulations unless and until corresponding government reimbursement rate increases are available to help nonprofit community-based providers who receive government support for their clients to achieve compliance. Any effort to offset significant increases in operational costs for publicly-funded programs with state dollars requires state legislatures to appropriate more funding. Since some states have a two-year budget cycle, a state s ability to react to a rule that requires additional funding may take up to 24 months. In the interim, many providers would be unable to absorb the extra operating costs. The immediate impact would be to reduce employees, wages, and/or services, leaving workers unemployed and individuals and families without the services they need. Recommendation: We request any wage level increase be implemented over several years to allow organizations and states to adapt. Specifically, we recommend an effective date for the final rule of at least two years after its finalization to afford states sufficient time to allocate appropriate funding. We further recommend that the final rule have a phased implementation timeframe of three to five years to minimize the negative impact on workers that would accompany a steep increase. The Duties Tests With respect to the question posed by the Department in the proposed rule, we recommend against setting a fixed threshold for time spent on non-exempt duties. We believe a standard with a bright line 5 P a g e

6 percentage - such as the 50 percent standard used in California - is overly prescriptive and does not take into account differences in duties and expectations that exist across sectors and industries. In addition to placing extensive, burdensome recordkeeping requirements on the employer, such a test would be unworkable in many workplaces where otherwise exempt employees must also conduct nonexempt activities. In the health and human services field, for example, it is not uncommon for a supervisor to unexpectedly cover a shift for a direct care worker. This is not typically scheduled or planned, and exempt supervisory employees understand that part of the job may involve performing unscheduled work or delivering emergency direct services in order to ensure continuity of care for a person served. According to one LSA member, A great majority of the clients we serve often face crises in their lives and need immediate assistance from our staff. Oftentimes, clients find themselves in dangerous situations where quick intervention by our staff is warranted. These crises and dangerous situations are not limited to conventional workday hours, and by necessity, the employees who assist these clients are not employed in positions that have set times of need where time worked or overtime can be stringently controlled. Our staff are respected professionals and managers, and are paid competitively for the work they do in the human and social services sector. Moreover, their status as exempt employees enables our organization to provide flexible and responsive interventions to our clients in need. Given these realities, adopting a percentage of time rule for purposes of the primary duties test would only further complicate the exempt status analysis and divert employer resources away from employee wages as administrative monitoring expenses would increase. Recommendation: We recommend against setting a bright line threshold or reinstituting the long duties test which was abandoned in Either of these options would increase the administrative burden on exempt workers and providers, be overly prescriptive, and reduce the flexibility and discretion to perform duties as employees see fit. Further, we recommend the existing duties tests not be changed for these exemptions. If the Department proposes future changes to the duties tests, we expect there would be a separate opportunity for public comment prior to the finalization of any rule. CONCLUSION Thank you again for the opportunity to submit comments. As discussed earlier, LSA members largely rely on federal, state, and local government funding to serve those in need; resources which have been steadily declining in recent years due in part to sequestration, inadequate provider reimbursement rates, and the lingering impacts of the Great Recession. Despite this challenging financial climate, LSA members have adhered to their mission-driven principles, seeking to answer their call to serve and support the most vulnerable individuals and families in communities across the country, while championing worker-friendly wage and benefit policies within their individual organizations. 6 P a g e

7 We look forward to working with you to advance our shared goals in a way that empowers individuals, families, and communities. If you have any questions, please contact Lindsey Copeland, LSA s Director of Public Policy and Advocacy, at lcopeland@lutheranservices.org or (202) Sincerely, Charlotte Haberaecker President and CEO Lutheran Services in America 7 P a g e