So, after many months of anticipation, I found the Department of Labor’s proposed overtime rules oddly disappointing. This was supposed to be a major overhaul of the regulations governing which employees would be exempt from the requirement to pay overtime for all hours worked over 40 in a workweek. The current regulations set forth three tests for exempt status: (1) the employee must be paid on a salary basis; (2) the salary level must be at least $455 per week ($23,660 per year); and (3) the employee must meet duties tests specific to the exemption in questions (executive, administrative or professional). We all knew there would be a significant increase in the minimum salary level required for exempt status. But we also expected the DOL to address the duties tests. It didn’t.
In the Executive Summary of the proposed rule, the DOL actually said:
The Department is not making specific proposals to modify the standard duties tests but is seeking comments on whether the tests are working as intended to screen out employees who are not bona fide [Executive/Administrative/Professional] employees; in particular, the Department is concerned that in some instances the current tests may allow exemption of employees who are performing such a disproportionate amount of nonexempt work that they are not EAP employees in any meaningful sense.
What?!! Over 16 months after President Obama signed the Executive Order directing the DOL to revise the overtime rules and almost 300 pages of proposed rules later, all the DOL did was to increase the salary level? And they’re still thinking about what to do about the duties tests?
What is even more troubling is what is likely to happen – that the DOL will make changes to the duties tests in the final rule. These changes will become effective without any of us ever having the chance to see them and comment on them. Regulations are supposed to be subject to a notice and comment period, allowing us – the American public – to weigh in on the proposed rules. The agency is then supposed to consider these comments before issuing a final rule. Apparently, this is not going to happen to any changes to the duties tests!
And back to the salary increase. In his Huffington Post blog announcing the overtime rules revision, President Obama touted an increase to $50,400 per year (which is approximately $970 per week). Oddly, however, the proposed regulations themselves use $951 per week and $49,452 per year, which is supposedly equal to the 40th percentile of earning for full-time salaried workers. The DOL drops a footnote explaining that this number is based upon 2013 data, but that it will be updated for the final rule. At that point, the DOL said it would “likely rely on data from the first quarter of 2016.” It goes on to note that:
The latest data currently available is from the first quarter of 2015, in which the 40th percentile of weekly earning is $951, which translates into $49,452 for a full-year worker. Assuming two percent growth between the first quarter of 2015 and the first quarter of 2016, the Department projects that the 40th percentile weekly wage in the final rule would likely be $970, or $50,440 for a full-year worker.
I am puzzled by why the DOL, having more current 2015 data on hand, would use clearly obsolete data from two years ago. How is that helpful, really?
But another thing that the DOL fails to mention is in the context of the highly-compensated employee exemption. Under the current rules, an employee who makes $100,000 a year and performs at least one exempt duty also is exempt. The proposed rule states that it is setting the highly compensated salary level equal to the 90th percentile of earnings for full-time salaried workers, which it says is $122,148 annually. Again, according to the Executive Summary footnote, this is based on 2013 data. Unlike the 40th percentile number, however, the DOL wholly fails to address how this 90th percentile number will be updated for 2016. If it applies the same updating methodology as its does for the 40th percentile number, the actual required compensation to meet the highly-compensated exemption in the final rule will be quite a bit higher – likely in excess of $128,000!
We’ll certainly watch to see what happens. Maybe the DOL will pull it together and issue a final rule that makes sense. But I am not optimistic.