It’s been a year in the making, but Labor Secretary Thomas Perez’s recent blog post made it official: The U.S. Department of Labor (DOL) has submitted its much anticipated proposed rule to address who qualifies for overtime pay protections to the Office of Budget and Management (OMB).
There's one big caveat: the specifics of the overtime rule changes still are not public.
But according to Alex Passantino, an employment lawyer and partner in Seyfarth Shaw’s Washington, D.C. office, the proposal under OMB review would fundamentally change the application of the most-used exemption from minimum wage and overtime—the Part 541/white-collar exemption.
Currently, the cutoff between exempt (no overtime) and non-exempt (eligible for overtime) is $455 per week or $23,660 per year (anyone making more and is paid a salary is exempt). Passantino estimates that the new cutoff number will be around $45,000. Other estimates from media reports range from $42,000 to $51,000. Basically, the higher the number the more employees are newly eligible to be paid overtime.
Passantino, a former Acting Administrator of the DOL’s Wage and Hour Division, says the proposed rule could have the potential to make a significant impact on an employer’s operations, depending on the industry. While the rules could affect a large number of employers and industries, he says retail, restaurants, and some hotels will be the most affected.
Passantino says it appears that the DOL also will be making an adjustment to the "primary duty" test and other changes to the duties tests. That might mean the limitation or elimination on the ability of managers to engage in management and non-exempt work concurrently (store managers could not be forced to stock shelves, for example, unless they are paid overtime if they work more than 40 hours per week).
In the months prior to submitting the proposed rule, the DOL engaged in a series of listening sessions with the regulated community — both employers and employees— during which the department solicited input and ideas.
“During those meetings, the Department was focused on the requisite salary level and changes to the primary duty test,” he says.
Passantino says some estimates indicate that a salary increase to $50,400 per year would impact 5-10 million workers, but the impact of a salary increase would depend upon the exact size of the increase and geographical area.
Primary duty changes could be radical
In tthe "primary duty" area, changes might eliminate (or substantially reduce) a manager’s ability to engage in “line work” and management concurrently. That could mean the loss of the exemption for some front-line managers, particularly in smaller establishments. For example, each time a manager—even one who was unquestionably “in charge” — checked a customer in or out, or wiped down a table in a restaurant, or took a reservation over the phone, the employer would need to track that time to ensure that it did not exceed whatever limitation the Department’s revisions would require.
Alternatively, the employer could simply decide in advance that the employee would be non-exempt (hourly), which could involve a significant cultural change for a company that pays salaries to its managers, for example.
"The DOL’s theory is to make more people overtime eligible, and that it will do," he says. "It also is possible, however, that everything remains basically the same in terms of compensation, with the only change being more records will have to be kept by employers due to the nature of the new rules."
Passantino adds that since the 2004 DOL regulations have been in place, many of these same issues have been fleshed out by litigation. With the new DOL rule, more litigation is likely.
Be active if it affects your company
HR leaders eventually will have the opportunity to participate by sending comments into the DOL, once the OMB approves the rules and they are published in the Federal Register. The DOL is obligated to review public comments and make changes if the believe they are warranted. Passantino says whatever their final form, he expects the new rules to be in effect by early 2016.
“If this change is going to put you out of business, you can spell that out in your comments and the DOL has to at least listen," he says. “Also, HR leaders and their companies should get involved with trade associations in sending in comments.”
Finally, HR leaders should ensure that current classifications are accurate.
“People are struggling with it and waiting until the new rules come out,” he says. “But if workers are misclassified now, they are sure to get tagged if they get sued.”
