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After more than 15 months of waiting, the U.S. Department of Labor has issued a Notice of Proposed Rulemaking (“NPRM”) announcing the Department’s intention to shrink dramatically the pool of employees who qualify for exempt status under the Fair Labor Standards Act.
The 295-page NPRM, released June 30, contains a few specific changes to existing DOL regulations: more than doubling the salary threshold for the executive, administrative, and professional exemptions from $455 a week currently to $921 a week (with a plan to increase that number to $970 a week in the final version of the regulation), as well as raising the pay thresholds for certain other exemptions, and building in room for future annual increases. More ominously, the Department invites comment on a host of other issues. This opens the door to many further significant revisions to the regulations in a Final Rule after the Department reviews the public’s comments to the NPRM.
Background
On March 13, 2014, President Obama directed the Secretary of Labor to modernize and streamline the existing overtime regulations for exempt executive, administrative, and professional employees. He said the compensation paid to these employees has not kept pace with America’s economy since the Department last revised regulations in 2004. The President noted that the minimum annual salary level for these exempt classifications under the 2004 regulations is $23,660, which is below the poverty line for a family of four.
Since the President issued his memo, the Department has held meetings with a variety of stakeholders, including employers, workers, trade associations, and other advocates. The Department has raised questions about how the current regulations work and how they can be improved. The discussions have focused on the compensation levels for the exempt classifications as well as the duties required to qualify for exempt status.
The NPRM
The NPRM expressed the Department’s intention to increase the salary threshold for the white-collar exemptions from $455 a week (or $23,660 a year) to $921 a week ($47,892 a year), which the Department expects to revise to $970 a week ($50,440 a year in 2016) when it issues its Final Rule. Under this single change to the regulations, it is estimated that 4.6 million currently exempt employees would lose their exemption right away, with another 500,000 to 1 million currently exempt employees losing exempt status over the next 10 years as a result of the automatic increases to the salary threshold.
The NPRM acknowledges that roughly 25% of all employees currently exempt and subject to the salary basis requirement will be rendered non-exempt under the proposed regs. The Department recognizes that employers are likely to reduce the working hours of currently exempt employees reclassified as a result of these regulations, and that the reduction in hours will probably lead to lower overall pay for these employees.
Related changes in the regs include increasing the annual compensation threshold for exempt highly compensated employees from the present level of $100,000 to a proposed $122,148, as well as raising the exemption threshold for the motion picture producing industry from the present $695 a week to a proposed $1,404 a week for employees compensated on a day-rate basis.
Perhaps not surprisingly, given the likely impact of the proposal, almost all of the NPRM is devoted to economic analysis and justification for the steep increase in the salary thresholds. Nevertheless, the NPRM touches on some other topics as well. The Department states that it is considering, and invites comment on, a wide range of topics, including:
What Comes Next?
The proposed regulations are subject to a 30-day public comment period. Now is the time for any employer or trade association dissatisfied with the proposed regulatory text, or concerned about changes the Department is weighing for inclusion in a Final Rule, to submit comments. The Department has put the regulated public on notice: it is considering sweeping changes to the regulations not described specifically in the proposed regulatory text, such as altering the duties tests for exempt status. Employers may not have another opportunity to comment on the content of a Final Rule.
Following the public comment period, the Department will issue a Final Rule that may add, change, delete, or affirm the regulatory text of the proposal. The Office of Management and Budget will review the Final Rule before publication. This process is likely to take at least six to eight months. A Final Rule is not expected before 2016.
While waiting for the pending issuance of the proposed Fair Labor Standards Act (FLSA) white-collar regulations, employers can begin taking some steps now to prepare.
Many believe the proposed regulations will be issued in March, although the proposed regs haven’t been sent yet to the Office of Management and Budget.
It is rumored that California’s quantitative duties test may be applied to the FLSA executive exemption, which would require employees to spend at least 50 percent of their time in exempt work in order to be classified as exempt. An adviser stated they would be surprised if thequantitative duties test was limited to the executive exemption and feel it might be applied as well to the administrative and professional exemptions.
Employers may begin doing an analysis now on their exempt population and how this change would affect them.
For many companies, some classes of employees are nonexempt in California, but exempt in the rest of the country. That may change with the new rule as well, if California’s quantitative duties test is applied across the nation.
Five Key Steps
Various legal counsel recommends five key steps employers should take now in anticipation of the revised overtime regulations:
Employers should begin now by talking to the managers or supervisors responsible for these exempt employees to determine the actual job duties for the employees as opposed to the stated job duties, because it’s the facts that matter most.
Employers need to know their workforce and be proactive. They should identify those exempt positions whose classification barely meets the FLSA minimum qualifications for a white-collar exemption under either the duties or compensation components. If either the duty or salary component is affected by regulatory changes, employers will know these identified positions will be targeted first.
The more lead time that a business has to grapple with these issues, the more satisfactory the process and the outcome will be for everyone.
Florida’s minimum wage is currently $7.93 per hour. Beginning January 1, 2015, Florida’s minimum wage will increase to $8.05 per hour, which is a 1.5% (or $0.12) increase from last year.
Employers of “tipped employees” who meet eligibility requirements for the tip credit under the Fair Labor Standards Act (FLSA) may count tips actually received as wages under the FLSA. The employer, however, must pay “tipped employees” a direct wage. Effective January 1, 2015, the new minimum wage for tipped employees should become $5.03 per hour plus tips.
Florida law requires a new minimum wage calculation each year on September 30, based on the Consumer Price Index. If that calculation is higher than the federal rate (which is currently $7.25 per hour), the state’s rate would take effect the following January.
Please contact our office if you need a copy of the 2015 Florida Minimum Wage Poster. Be sure to post the new Minimum Wage Poster by January 1st.
The topic this month highlights record retention and cover what employers should be keeping and for how long.
Did you know that there are over 14,000 federal, state, and industry specific laws/standards/regulations that dictate how long employers are required to keep certain records? Non-compliance can result in fines against company employees personally as well as judgments against the company itself.
Some of the Federal Labor and Employment laws that require record retention include:
Please contact our office directly if you would like more information on this topic or if you would like more information regarding how to conduct an audit of your company record retention policies.
President Obama has proposed expanding the availability of overtime pay, which would cause the Department of Labor to do its first overhaul of Fair Labor Standards Act (FLSA) regulations in 10 years.
The President signed a memorandum on March 13, 2014, instructing the Department of Labor to update regulations about who qualifies for overtime pay. In particular, he wants to raise the threshold level for the salary-basis test from the current $455 per week in order to account for inflation. The threshold has been raised just twice in the past 40 years. The President did not specify the exact amount the threshold should be raised though.
“Unfortunately, today, millions of Americans aren’t getting the extra pay they deserve. That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year,” Obama said in his remarks on overtime pay.
The memorandum also suggests that both the primary duties and pay of some exempted employees do not truly fit in the executive, administrative and professional employees exemptions, referred to as the white-collar exemptions under FLSA.
In a fact sheet on the President’s memorandum, the White House said: “Millions of salaried workers have been left without the protections of overtime or sometimes even the minimum wage. For example, a convenience store manager or a fast food shift supervisor or an office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay.” The FLSA’s minimum wage would not protect a salaried worker because salaried workers’ pay must satisfy the weekly salary-basis test rather than the Federal hourly minimum wage, which is $7.25 per hour. The hourly minimum wage in Florida is currently $7.93 per hour.
The memo also pointed out that “only 12% of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections.“ The fact sheet also called the current FLSA regulations outdated, noting that states such as New York and California have set higher salary thresholds.
Small businesses will be hit particularly hard by a change in the FLSA regulations.
If the regulations shrink the current white-collar exemptions, employers would have two main options to hold down costs. They would have to either increase workers’ salary above the new salary-basis threshold (to avoid paying overtime) or leave employees in the nonexempt category and pay them overtime. Companies could also hire more employees, but the other two options are more likely.
Implications for HR
Once tightened white-collar exemptions are implemented, which is not likely to happen for months now, it could result in far-reaching implications for HR, including wage and hour audits and layoffs. The money to pay for increased overtime wages has got to come from somewhere which might mean layoffs, reducing overtime and taking a fresh look at the fluctuating workweek.
When asked at a press briefing about the burden on businesses if the Obama administration succeeds in efforts to both increase the federal minimum wage and revise FLSA regulations, Betsey Stevenson, a member of the White House’s Council of Economic Advisers, said, “We think these two items are very different, but, obviously, they do feed into the same thing, which is people should be rewarded for fair work.” She suggested that some workers in the white-collar exemptions aren’t even earning minimum wage for all the work they do at low salaries.
Even though the president did not assign a number for the minimum salary-basis threshold, Stevenson said the overtime “protections have been eroded over time. This threshold in 1975 was nearly $1,000 in today’s dollars; today it’s $455.” Stevenson believes that the rule should be modernized as a matter of the “basic principle of fairness.”
We will continue to keep you abreast of any changes to FLSA as well as other regulations that can impact your business. If you have any questions about the current or proposed FLSA regulations, please contact our office.
The topic this month focuses on identifying five of the stickiest Wage & Hour issues that employers face under the Fair Labor Standards Act (FLSA).
FLSA class actions are up approximately 70% since 2000 and more than half of all the FLSA lawsuites being filed in Federal courts nationwide are being filed in Florida.
Some of these issues covered include:
Please contact our office directly if you have any Wage & Hour or FLSA questions and how it could be impacting your business.
Florida’s minimum wage is currently $7.79 per hour. Beginning January 1, 2014, Florida’s minimum wage will increase to $7.93 per hour, which is a 1.7% (or $0.14) increase from last year.
Employers of “tipped employees” who meet eligibility requirements for the tip credit under the Fair Labor Standards Act (FLSA) may count tips actually received as wages under the FLSA. The employer, however, must pay “tipped employees” a direct wage. Effective January 1, 2014, the new minimum wage for tipped employees should become $4.91 per hour plus tips.
Florida law requires a new minimum wage calculation each year on September 30, based on the Consumer Price Index. If that calculation is higher than the federal rate (which is currently $7.25 per hour), the state’s rate would take effect the following January.
Please contact our office if you need a copy of the 2014 Florida Minimum Wage Poster. This will need to be posted in a visible place for all employees by January 1, 2014.
As a business owner, it is important to understand how the Affordable Care Act may affect your business. However, with so many misconceptions about about Health Care Reform works, this can be difficult.
A common myth is that business owners will be fined if they do not provide notification to their employees about the new Health Insurance Marketplace.
If your company is covered by the Fair Labor Standards Act (FLSA), you must provide a written notice to your employees about the Health Insurance Marketplace (aka Exchange) by October 1, 2013, however the Department of Labor has announced is no fine or penalty currently under the law for failing to provide this notice.
For more information on the Exchange notice, please contact our office or review a previous post on this topic.
The health insurance Marketplace created by the Affordable Care Act (ACA) will open on October 1st. Most small employers (those with 50 or fewer full-time employees) are not required to offer health insurance coverage under ACA. Businesses with more than 50 full time employees have gotten a one year reprieve from the “pay or play” penalties. But all companies, regardless of size, are required to notify their employees about the Obamacare Marketplaces by October 1st.
The state and federal insurance exchanges are websites on which individuals and small businesses can shop for health plans. Though the deadline is less than a month away, many small businesses may not realize they have to notify employees of the existence of the Marketplace (aka Exchange). Many small business owners are unaware of this requirement or are under the misconception that it does not apply to them because they are too small to be governed by the health care reform law’s mandate. It is not clear how the requirement will be enforced yet, but penalties for businesses that do not comply could reach $100 per worker per day.
Some employers assume that because they are a small business who does not offer health insurance currently that the requirement does not apply to them. The Exchange notification requirement applies to any business regulated under the Fair Labor Standards Act (FLSA), which covers all companies with at least one employee and $500,000 in annual revenue.
The U.S. Department of Labor has posted information about the notification requirement on its website and has provided model notices (in both English & Spanish) to be used by both employers who offer insurance and those who do not offer insurance.
The one to three page model notices can be downloaded, filled out, and printed, either for distribution in the workplace or for mailing to employees’ homes. Employees who are hired after October 1st must be provided the notice within 14 days of their date of hire with the company. Employees must be provided the notice, regardless of their enrollment status in the group’s medical plan. The safest route is to distribute the notice via U.S. mail or follow the instructions for distributing it electronically. Currently there is no requirement that states the employer must obtain signatures from employees confirming their receipt of the notice.
Please contact our office for more information on how to ensure you business is compliant with ACA requirements in 2014.
Florida’s minimum wage is currently $7.67 per hour. Beginning January 1, 2013, Florida’s minimum wage will increase to $7.79 per hour, which is a 1.5% (or $0.12) increase from the current minimum wage.
Employers of “tipped employees” who meet eligibility requirements for the tip credit under the Fair Labor Standards Act (FLSA) may count tips actually received as wages under the FLSA. The employer, however, must pay “tipped employees” a direct wage. Effective January 1, 2013, the new minimum wage for tipped employees should become $4.77 per hour plus tips.
Florida law requires a new minimum wage calculation each year on September 30, based on the Consumer Price Index (CPI). If that calculation is higher than the federal rate (which is currently $7.25 per hour), the state’s rate would take effect the following January.
The state is scheduled to release a press release soon confirming these rates for January 1, 2013. We will provide an updated Minimum Wage Notice for Employees is released by the state.