The U.S. Department of Labor (DOL) sent its much anticipated final overtime regulations to the Office of Management and Budget (OMB) for review on March 14, 2016. Technically, this move came slightly ahead of schedule. OMB now has 90 days to review, which would put its “due date” in mid-June – ahead of the July regulatory agenda publication date we previously reported. However, as these overtime regulations are a top-line priority subject to intense political scrutiny, there is reason to believe OMB may not complete its review within the 90-day window.
We previously noted that the timing of the release is critical because the regulations could face a congressional challenge that would likely fare better if the final rule came out later in the year. Given the Congressional Review Act, and the length of this year’s legislative calendar, such challenge could occur under a new (and possibly Republican) President. In any event, employers who have been awaiting the new regulations, which were announced last summer, are now on notice that the regulations are one step closer to the finish line.
The regulations are expected to expand entitlement to overtime wages by more than doubling the salary minimum which employees much earn in order to be overtime exempt. Under the current regulations, for an employee to be considered exempt from the overtime provisions of the FLSA, the employee must earn a minimum weekly salary of $455 (or, $23,660 annually for a full-time employee). Under the proposed regulations, the salary level would increase to $970 per week (or, $50,440 per year). The DOL estimates that 4.6 million workers currently classified as exempt would lose this exemption under the proposed regulations. Given sheer magnitude of the proposed change, the DOL received more than 290,000 comments before it prepared and sent the draft final to the White House’s OMB.
Finally, the lingering question remains as to whether the DOL will change the so-called “duties test.” If it does, we anticipate that it will adopt California’s test which requires that employees are “primarily engaged” in – in other words, spend at least 50 percent of their time – performing duties which meet the test for exemption. Regardless, even if the final rule contains a change to the duties test, OMB or the White House could strip it out based on political or other considerations. As such, any information on the final fate of the duties test change is purely speculative at this point.
As we’ve noted before, any change that takes effect in the third or fourth quarter of 2016 will pose significant administrative hurdles to employers. In addition to auditing their workers for compliance with the salary test, they may also be required to undertake an involved assessment of their employees’ job duties if the duties test changes.
2016 looks like a challenging year indeed.