Now that the Obama Administration and U.S. Department of Labor (DOL or Department) have released its proposal to revise the Part 541 overtime regulations, it is important to understand what may be next and when we can expect developments with this regulatory proposal.
DOL’s regulatory proposal was published in the Federal Register on Monday, July 6, 2015. 80 Fed. Reg. 38516 (July 6, 2015). It provides for a 60-day comment period from this date of publication so the comment period will close on September 4, 2015. The DOL’s proposal will change the requirements for an employer to meet the executive, administrative, professional, outside sales, and computer (EAP) exemptions as contained in section 13(a)(1) of the Fair Labor Standards Act. Among the sweeping changes included in the proposal is a call for an increase in the minimum salary for the executive, administrative, and professional exemptions from $455 per week—$23,660 annually—to a salary not less than $921 per week—which annualizes to $47,892 and which is anticipated to be about $970 per week and $50,440 per year by the time the final rule is effective.
While the DOL did not make any substantive proposals for the duties tests, it is requesting comments on whether they adequately determine whether an employee qualifies as exempt or non-exempt and whether the current tests permit exempt employees to perform a disproportionate amount of non-exempt work.
With the publication of the proposed rule, we now move into the critical notice-and-comment period required by the Administrative Procedure Act (APA). There will (and should) be many comments submitted to the DOL to extend the comment period, which currently extends for 60 days until September 4, by an additional 30 or perhaps even 60 days. The additional time is necessary to provide employers and employees with adequate opportunity to evaluate the proposed salary increase and to comment on the open-ended questions that the DOL posed about the duties tests, among other topics.
An extension of the comment period is crucial also in order to permit additional time to analyze the DOL’s Preliminary Regulatory Impact Analysis (PRIA) required by Executive Order 12866 since the proposed regulatory action is “Economically Significant.” An economically significant regulatory proposal is defined as one that has an annual impact on the economy of at least $100 million. An extension would be beneficial because it would permit a more thorough review of the DOL’s claim that its salary level proposal “is conceptually similar to the methodology utilized by the Department in the 2004 Final Rule, which in turn was largely modeled on the salary level methodology first set forth in the Kantor Report in 1958 and used by the Department in nearly every salary level rulemaking thereafter.” 80 Fed. Reg. 38527 While the Department’s increased salary level proposal uses nationwide Current Population Survey (CPS) data, additional time for further economic analysis is needed in order to determine whether the Department improved upon the methodology by using a more standardized sample of all full-time salaried employees nationwide in setting the salary level at the 40th percentile of earnings of all full-time salaried employees nationwide as opposed to only employees working in certain industries or geographic regions.
It is important for both large and small employers to submit comments for the record. The APA requires this notice and comment procedure to test proposed regulations, to provide fairness in rulemaking to affected parties, and to give parties an opportunity to develop a record of their objections. Thus, the DOL must review all the comments and prepare a preamble and final rule that hopefully will be an improvement over the proposal.
Depending on the number of comments it receives, we would expect that it may take the DOL approximately 9 to 12 months to review the comments and to prepare a preamble and final rule. In addition to this regulatory priority, the DOL has a number of other regulatory initiatives for the Occupational Safety and Health Act of 1970, the Affordable Care Act, and a number of executive orders (such as Executive Order 13673, Fair Pay and Safe Workplaces) that will compete for its limited resources. Thus, we could expect the DOL to publish a final rule in late Spring or early Summer of 2016 at the earliest. Depending on the timing and requirements of the DOL’s other initiatives, the Part 541 final rule could easily slide into the Summer or possibly even early Fall of 2016.
Congress will attempt to interrupt or possibly disrupt this process to develop a final rule. Even though Congress is controlled by Republicans, the president’s veto authority makes it very unlikely that Congress will halt work totally on this rulemaking. Congressional oversight will take many forms, such as meetings with DOL officials, hearings on the proposal, and budget provisions restricting the expenditure of funds by the DOL to work on this regulatory initiative. Time will reveal the role that Congress may play in the development of a final rule.
Ultimately, the DOL will issue, in all likelihood, a final rule, which clearly will include a significant increase in the salary level test for exempt EAP employees. While the current proposal is for a salary threshold $921 per week based on the 40th percentile of the weekly wages of all full-time salaried workers nationwide, it is projected to be approximately $970 per week by the time a final rule goes into effect. Even if the DOL were to reduce the percentile, we can anticipate a significant, dramatic increase in the salary level test.
The lingering concern is what, if anything, the DOL is planning to do with the duties tests for the EAP exemptions given that it expressed concerns in the proposal that exempt employees spend “a disproportionate amount of time on nonexempt duties.” 80 Fed. Reg. 38543. In inviting comments on whether the current duties tests are effective in differentiating between exempt and non-exempt employees, the DOL has provided notice to affected parties that it may revise the duties tests. While this may be only a possibility, it also should prompt employers and employees to respond to the DOL’s questions about the duties tests.
There are many additional nuances to the DOL’s revisions to the Part 541 regulations, and it is important for employers to be knowledgeable of the law’s intricacies and to stay abreast of new changes. For an in-depth review of the revisions, join us for our upcoming webinar, “DOL’S Proposed Part 541 Regulations: How Will They Change The Overtime Exemptions?,” featuring Alfred B. Robinson, Jr. (shareholder, Washington, D.C.) and Robert A. Jones(shareholder, San Francisco) on Thursday, July 9, 2015 at 11 a.m. Pacific and 2 p.m. Eastern.