White collar rule moves closer toward finalization

Posted August 19, 2019

On August 12, the Fair Labor Standards Act (FLSA) overtime exemption rule, otherwise known as the white-collar rule, took another step along its path to becoming final: it was sent to the Office of Management and Budget (OMB) for review. The OMB is an agency within the Executive Office of the President.

For purposes of a final rule, this is the last step of the rulemaking process in which the agency responds to public comment on the proposed rule and makes appropriate revisions before publishing it in the Federal Register to become effective. Proposed changes to the rule were published in March, and comments were accepted through May 21. Well over 100,000 comments were filed.

The Department of Labor (COL) increased the weekly salary level from $455 ($23,660 per year) to $913 ($47,476 per year) in a final rule published May 23, 2016. That rulemaking was challenged in court, and on November 22, 2016, the U.S. District Court for the Eastern District of Texas enjoined the DOL from implementing and enforcing the rule. On August 31, 2017, the court granted summary judgment against the DOL, invalidating the 2016 final rule. An appeal of that decision to the United States Court of Appeals for the Fifth Circuit, based on the salary threshold, is being held in abeyance. Currently, the DOL is enforcing the regulations in effect on November 30, 2016, including the $455 per week standard salary level, which is the same level set in place during the 2004 final rule.

The final rule, however, would raise the $455 weekly wage level to $679, raising the annual income level from $23,660 to $35,308.

To-do list

When the 2016 final rule was in place, many employers adjusted pay thresholds of some employees to comply with the rule or reclassified them as nonexempt. With this final rule getting closer to the regulatory landing strip, some employers may need to make similar adjustments.

Under the FLSA, an employer may choose to not pay overtime to certain, exempt employees, but only if those employees meet certain criteria. They must be paid on a salary basis, be paid at least a certain level (what this rule deals with) and perform certain duties. If employees do not meet all three of these criteria, they must be paid overtime at a rate of 1.5 times their regular hourly rate for any hours worked over 40 per week. Many of these employees are those employed as bona fide executive, administrative, professional and outside sales employees.

This rule does not alter the salary requirement or the duties test. Therefore, employers will need to review their pay rates based on this new level and determine if any of their employees will lose the exemption. If so, they might want to increase the pay level, so the employees may remain exempt.

The period for OMB review is limited to 90 days. There is no minimum period for review. The review period may be extended indefinitely by the head of the rulemaking agency; alternatively, the OMB may extend the review period on a one-time basis for no more than 30 days. Therefore, a final rule could be published within the next few months. The DOL would like to see this on the books during the current administration.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.