The Department of Labor's controversial proposed changes to the "white collar" overtime exemption regulations came under fire during a House Subcommittee on Investigations, Oversight and Regulations hearing on October 8, 2015. Among other changes, the proposal released on July 6 of this year sets the minimum salary required for overtime exemption at the 40th percentile of weekly earnings for full-time salaried workers, which by the year 2016 is predicted to be $50,440. The proposal also provides for automatic increases to the minimum salary level. While the proposal did not explicitly include amendments to the duties test, the DOL requested input on whether and to what extent changes are warranted.
Subcommittee Chairman Cresent Hardy (R-NV) began the hearing by claiming the DOL "has done a poor job of analyzing the impact of this rule on small businesses as required by the Regulatory Flexibility Act. It vastly underestimated the number of affected small businesses and what the real ramifications are for those companies and their employees." Hardy then criticized the degree of the proposed increase in the salary level under which employees would qualify for overtime pay. The jump from $23,660 a year to $50,440 represents a 102% increase, an amount that, Hardy said, "will have a heck of a lot of impact on a small business owner’s bottom line."
Kevin Settles, testifying on behalf of the National Restaurant Association, also took issue with several components of the DOL's proposal. Settles claimed that the time period allowed for comment was "inadequate for a proper economic analysis." Although the DOL held "listening sessions" before the proposed rule was issued, Settles said the sessions did not adequately compensate for the lack of time in which to provide meaningful comment. The sessions themselves "were focused on general ideas and were no substitute for the robust notice and comment requirements mandated by law."
Another point of contention was the proposal's new minimum salary rate, which he deemed inappropriate for the restaurant industry:
The Department believes that its proposed salary level will not exclude from exemption a high number of employees which meet the duties test. When applied to my industry, the contrary is true. The proposed rules are a radical departure from the traditional formula used to set the minimum salary. They not only double the current salary target but also serve to eliminate the consideration of regional economies.
Settles explained that the purpose of creating a minimum salary level was to provide a means of screening out obviously nonexempt workers. Therefore, the salary should be set at a level where it is obvious that all those workers earning below that threshold would "clearly not meet a duties test." However, Settles said, the DOL is "upending this historic rationale and setting the salary level at a point at which all employees above the line would be exempt. This would greatly limit the number of employers in the restaurant industry able to use the exemption." In other words, the rule would create a situation in which an employee might meet the duties test, but would become nonexempt by virtue of the increased salary threshold.
Settles also opposed the proposal's automatic salary level increases because such a mechanism "will only perpetuate bad policy." Moreover, Settles said he would only learn of new rates once they are published in the Federal Register.
Ed Brady, testifying on behalf of the National Association of Home Builders, said the construction industry would also be negatively impacted by the DOL's "one-size-fits-all" approach. Notably, he said the proposal fails to account for regional differences in pay. Rates in the construction industry, he said, can vary considerably. He cited an analysis conducted by the National Association of Home Builders that found "approximately 116,000 construction supervisors would be affected in some way by the proposal. More than 31% of total employment for this occupation class sector would no longer be eligible for the exemption."
Other problems with the proposal are that it does not consider total compensation packages in arriving at the salary level, and employees will lose workplace flexibility that comes with being a salaried employee. He emphasized that workers consider it a promotion when they go from hourly to salaried.
Terry Shea, testifying on behalf of the National Retail Federation, agreed with this point. Shea said becoming an hourly worker takes away from an employee's flexibility both personally and professionally. With respect to the retail industry in general, the witness believed the proposed rule would effectively "[do] away with entry-level positions and middle management."
In contrast, panelist Ross Eisenbrey, Vice President of the Economic Policy Institute, spoke in favor of the proposed rule, emphasizing that "work-life balance is precisely what the FLSA is about." He supported the DOL's efforts, claiming "the Secretary of Labor has done precisely what the law requires in resetting the salary test to a level that truly reflects the compensation of bona fide executives, administrators, and professionals."
Chairman Hardy disagreed, and said he planned to send a letter to the DOL about the panel members' concerns.
A complete list of hearing witnesses and links to their testimony can be found here.