The US Department of Labor has begun the process of revising or reversing the controversial new overtime rule enacted by the Obama administration last year, which would have raised the salary threshold at which employees are exempt from overtime pay from $23,660 to $47,476, but was held up in court before coming into effect. The Trump administration indicated earlier this month that it was planning to rewrite the rule, and on Tuesday, the Labor Department issued a request for information, soliciting public comments on the rule as a first step toward amending it, Reuters reported.
Specifically, the department is asking for input on whether and how to update the current salary threshold, or whether to eliminate the threshold entirely and base overtime eligibility solely on the “duties test.” It also wants to know how last year’s rule change and the injunction blocking it affected employers, many of whom raised salaries in anticipation of the rule and in some cases intend to keep those raises in place regardless of what happens in Washington. At TLNT, Seyfarth Shaw attorney Alex Passantino, a former acting administrator of the DOL’s Wage and Hour Division, provides a detailed overview of the questions included in the RFI, such as:
- Should the 2004 salary test be updated based on inflation? If so, which measure of inflation?
- Would duties test changes be necessary if the increase was based on inflation?
- Should there be multiple salary levels in the regulations? Would differences in salary level based on employer size or locality be useful and/or viable?
- Should the Department return to its pre-2004 standard of having different salary levels based on whether the exemption asserted was the executive/administrative vs. the professional?
The question of whether to differentiate salary thresholds by local cost of living is potentially the key innovation in the Trump administration’s proposed overhaul of the rule. Talking to SHRM’s Allen Smith, Passantino and other employment attorneys discuss how this might work—or indeed, whether it would work at all:
“Employing a cost-of-living-based salary test certainly would address a number of the concerns raised by employers in the previous go-round,” said [Passantino]. “A salary level that works for New York [City] or D.C. does not necessarily work for the rural South. Because of the way the duties test works in connection with the salary, however, the reverse is not necessarily true. The salary is a screening mechanism; if it is low enough to ensure we are not inappropriately screening out exempt employees in the rural South, it likewise serves that function in New York [City].”
However, Passantino said the DOL will have difficulty creating the different salary levels because it will be challenging to establish the regulatory framework to determine where an employee works. …
Steven Suflas, an attorney with Ballard Spahr in Cherry Hill, N.J., and Denver, said multiple standard salary levels would, on the one hand, “appear to be more equitable by taking into account local standards of living. But, on the other hand, it would make compliance for employers, especially national employers, more difficult, as salary levels could vary region by region or location by location. This new initiative would also appear to be inconsistent with the new administration’s stated policy of simplifying federal regulation.”
A big question mark hanging over the future of the rule is that shortly before President Donald Trump took office, the department appealed the injunction blocking the rule to the Fifth Circuit Court of Appeals in New Orleans. The Texas judge who issued the injunction last November accepted the argument of the plaintiffs in the case (a group of states and business associations) that the Labor Department did not have the authority to determine overtime eligibility based on employees’ salaries—a right the department continues to defend regardless of the new administration’s plans to modify the rule. Whether or not the Fifth Circuit rules that the Labor Department does indeed have that power will bear heavily on the validity of the rule-making process now underway, Passantino notes at TLNT.
If the Labor Department is unable to update the overtime rule by regulatory means, Republican lawmakers have issued several proposals to do so legislatively. These proposals include establishing a lower salary threshold than the one proposed by the Obama administration, phasing it in gradually over several years, a more flexible approach to the duties test, and giving organizations the option to offer employees “comp time” instead of overtime pay.
Complicating matters still further, some states and localities have taken matters into their own hands and pursued overtime rules of their own for employers in their jurisdictions, based on the Obama administration’s rule. It is currently unclear how these states would respond to a change in federal policy, or whether Congress or the Trump administration might move to preempt those local rules.