New FLSA regs are on the move… and employers should be too!

Welcome back to the journey of the new FLSA “White Collar” regulations. To return to our story:

• After months of anticipation, on June 30, 2015, the Department of Labor’s Wage & Hour Division announced a new proposed rule that would amend the provisions of the Fair Labor Standards Act (FLSA) related to the salary pay level for exempt employees. The rule is expected to extend overtime protections to nearly 5 million white collar workers within the first year of its implementation.
• In a nutshell, the DOL’s proposal would raise the minimum weekly salary for exempt employees from the current $455 per week to $970 per week, which is $50,440 per year. The rule would also index the exempt salary level to the 40th percentile of weekly earnings for full-time salaried workers, meaning that the exempt salary level would likely increase annually under the new rule.
• The public had 60 days to comment on the proposed rule, and comment they did. Many comments were in the vein of those by this non-profit organization:

The proposed rule…with unintended negative consequences for the individuals LSA members serve and the workers they employ – the very people this proposed rule seeks to protect.

— excerpt from comments of Lutheran Services in America, Sept. 4, 2015

• Despite requests from employers and Republican lawmakers to extend the comment period, the DOL refused to do so. The DOL received over 260,000 comments on the rule by September 4, 2015, when the comment period closed.
• With the comment period quickly closed, many DOL-watchers (ok, employment lawyers) expected the DOL to issue the final rule by the end of 2015, which would have made the changes official in early 2016. But, the final rule did not come by end of 2015.
• In December 2015, DOL Secretary Thomas Perez said that he was “confident” the rule would be issued in the Spring of 2016. However, the DOL’s regulatory agenda indicated a July 2016 date, which was echoed in comments by the DOL’s solicitor general.
• So, that brings us to the present. In an unexpected early move, on March 15, 2016, the DOL submitted the proposed rule to the Office of Management and Budget for review. OMB review, the last step in the approval process before issuance of the final rule, typically takes 30 to 60 days. That means that the final rule could be issued – just as Secretary Perez confidently predicted – this spring. The new rule would then likely take effect by the summer, just about a year after it was first issued.

With uncertainly about the rule’s timing, many employers have taken a “wait and see” approach to preparation for the rule. Well, now that the DOL is moving to finalize the rule, employers must start serious preparation by considering the practical and financial impact the new salary level will have on their operations.

• Employers can start by evaluating current exempt positions with salary levels in the gap between the current minimum weekly salary of $455 and the anticipated new salary level of $970 per week.
• Options for employers include:
  1. salary increases for employees below the $50,440 annual salary leave in order to maintain exempt status; or
  2. as an alternative, employers may re-classify positions below that minimum level salary as non-exempt.
• The decision to re-classify a position brings with it additional issues, such as the requirement that formerly exempt employees must track their hours worked and receive overtime compensation that employers must also consider.