- FLSA changes are a hot topic. More than 1,000 total rewards professionals attended a WorldatWork webinar on the DOL’s recent overtime final rule.
- Employers are uncertain how to proceed. One lawyer advised employers to take a “hurry up and wait” approach to address the current situation.
- Don’t get caught flat-footed. Reviewing organizational budgets, classification scenarios and job descriptions, and the federal duties tests may be prudent steps for employers during this uncertain period.
If you’ve followed the news headlines and chatroom banter, you are likely confused with how to proceed with the Department of Labor’s recent final rule on the overtime provisions of the Fair Labor Standards Act (FLSA).
On one side, there are the rule’s upcoming initial compliance dates. On July 1, organizations must ensure all employees who are classified as exempt from overtime are making at least $43,888 in base salary. Then, on Jan. 1, 2025, they must ensure those exempt employees meet or exceed a higher threshold – $58,656 in base salary.
On the other side, there are lawsuits that aim to scuttle the April 23 final rule. Business groups — including the National Retail Federation, the American Hotel and Lodging Association, and the Associated Builders and Contractors — sued the DOL on May 21 in a federal district court in Texas, claiming the department exceeded its authority under the FLSA and that the rule violated the Administrative Procedure Act (APA).
So, what is an organization to do? Act to comply? Sit and wait? James Reid, a partner at the Honigman LLP law firm, provided his opinion during a WorldatWork webinar on May 15 titled, “New Federal OT Rules: Your Next Step”. Speaking to the webinar audience of more 1,000 total rewards professionals, Reid suggested that employers both act and not act.
‘Hurry Up and Wait’
In regard to making salary changes in line with the July 1 threshold, Reid said he personally would apply a conservative approach … for now.
“I would hurry up and wait,” he stated. “I would probably wait until one payroll period prior to July 1 and see where the courts are at in terms of deciding the enforceability of this new exempt test.”
Reid then provided history for context.
“During the Obama administration, the Department of Labor increased the salary basis, and that was challenged in the courts and an injunction was entered prior to its effect,” he said. “This time around, the increase is smaller. In my opinion, there is about a 50/50 chance of it being enforceable.”
And those odds, Reid said, were for the initial compliance date, adding there are scenarios where portions of the rule are upheld and others are partially or fully struck down.
“I think we will know prior to July 1, so we’re not going to likely have to wait until January 1 to find out if the second change is OK,” he said. “It’s possible, theoretically, that the first change is OK and the second is not, or that it has to be a lesser amount. But, I think it’s more likely they’re both not OK or both will be a lesser amount than just changing the January amount to something lower. Frankly, it’s usually not that simple. Courts usually would strike it down in total [and] say, ‘You don’t have that authority — try again.’”
If that occurred, Reid predicted a delay into 2025. “By that time … this is an election year, so there’s no guarantee on what new laws will pass after the election,” he said.
Taking Some Proactive Steps
With that as a backdrop, Reid explained employers can and should take several steps while the lawsuits run their course. One is for organizations to examine the current state of their employee salaries and classifications, and then think philosophically and fiscally.
“I would evaluate [in case the rule does go into effect], would you rather bump [an individual’s] salary or convert them to hourly?” he said.
For that, Reid said employers should understand the budgetary ramifications of each classification scenario and the degree to which employees in specified roles are currently eligible for — and/or receiving — overtime pay, given their work hours.
Another step, according to Reid, would be for employers to examine their job descriptions and see if those for salary/exempt positions match the language and responsibilities spelled out in the duties tests for executive, administrative and professional (EAP) workers as well as those for computer and outside sales employee roles. Fact Sheet #17A from the DOL’s Wage and Hour Division provides the qualification criteria for each of these.
“I realize a lot of companies don’t have job descriptions that exactly match the exempt tests,” Reid said. “For those [organizations] that have employees that potentially meet this test, make sure those elements, all of them, are in their job description. And, just because they’re in the job description doesn’t mean you’re automatically safe. In reality, they actually must have [and perform] those duties.”
In addition, Reid advised employers to keep abreast of similar actions occurring at the state level.
Whether or not the federal final rule goes through in its current or an altered form, he said, “Some states [i.e., Alaska, California, Colorado, Maine, New York, Washington] have already passed their own state law guidance on what is needed to be exempt — or not — from overtime.” Other states may take up overtime and related salary legislation if federal attempts are thwarted.
Reid reminded employers that if a state establishes a more protective standard than the provisions of the FLSA and the DOL’s implementing regulations, the higher standard applies in that state. This would include exemption criteria for EAP employees under state law with higher earnings thresholds or more stringent job duties requirements than those provided in the DOL’s regulations.
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