For months, crystal balls have been working on overdrive trying to predict when the Department of Labor will roll-out the final version of the new white collar overtime pay exemption regulations and what will be in those regulations. While there is no way to accurately make these predictions, there have been some official comments recently made about what can be expected, and it’s not too late for employers to prepare for the new regulations even though the details are still uncertain.
First, as to when—the Secretary of Labor is on record saying that “late Spring” is the goal. During a meeting of the American Bar Association’s Federal Labor Standards Legislation Committee mid-winter meeting held this week, Patricia Smith, the Department of Labor’s Solicitor of Labor, suggested that if one is loose as to what constitutes “late Spring,” a realistic roll-out could be made “around late June or early July.”
What a “roll-out” is, though, is subject to some interpretation and a few procedural steps. First, before the final regulations are published, they must be reviewed by the Office of Regulatory Review. The public will know when the DOL submits them to the ORR. Once submitted, the ORR usually takes about 30 days for its review. In the process, ORR may make final edits or even substantive changes. During this period, interest groups will lobby the White House aggressively to urge that certain items be included or excluded in the rules they have yet to see. If the early July roll-out is a good prediction, we should know that it's before the ORR by late May or early June. In any event, at the same ABA meeting, the Solicitor of Labor told the audience that the “final rule will not be identical to the proposed rule [of last July].”
Second, after the final regulations are rolled out, i.e., made public, there will have to be some time allowed before they become effective. The conventional wisdom is that the window for these rules will be 60 days. Longer periods have occurred as to some new regulations in the past, and employers are urging for more time to be allowed in this instance. Given the political context, however, more time is not likely. Specifically, new regulations are always vulnerable to congressional overrides vis-a-vis the Congressional Review Act. Under the CRA, Congress has a 90-day period during which it may trump a regulation, subject to presidential signature or veto overrides. Even though such congressional action rarely has been undertaken, let alone been successful, to insulate against such a tactic the Solicitor implied that the DOL will make sure that this period will close before the end of the year to avoid the effective date from being delayed until after a new administration takes office in January.
As proposed, the regulations would increase the minimum salary level required for salaried employees to be exempt, if they also satisfy one of the “duties tests,” from $455 per week (or $23,650 per year) to $970 per week (or $50,440 per year). In addition, that salary level amount is proposed to be annually adjusted, but whether it will be indexed to the CPI or some other factor will not be known until the regulations are finalized.
Further, while the proposed regulations do not include changes to the “duties tests” for exempt status, when it published the proposed regulations the DOL asked for comments on that topic. For instance, the DOL invited comments as to whether the “California rule” should be adopted and applied to exempt employees, and thereby require them to solely perform their exempt duties for more than 50 percent of their workweeks, as opposed to the current rule that their exempt duties constitute their primary duties even if performed simultaneously with non-exempt duties. On this point, the Solicitor of Labor said that some sort of change to the duties test, whether it be the adoption of the California rule or some other test, should not be ruled out as a potential outcome to the rulemaking process. If this actually occurs, an uproar will likely occur, but the DOL is confident that its legal footing to do so is sound.
WHAT TO DO NOW
Employers should not take a “wait and see attitude.” Instead, they should be engaging in some serious planning in anticipation of the new rules. For instance:
- Positions should be reviewed as to identify which employees or positions are vulnerable to being reclassified as non-exempt due to the new standards;
- Options to increase salaries to retain exempt status should be weighed;
- If salaries are not to be increased, employers should consider the various ways as to how wages will be set and if schedules can or will be modified, to mitigate against the exposure to paying overtime premiums;
- If applicable, communication plans should be developed to explain to employees why they are losing their exempt status and how to address the potential morale problems such a change may cause;
- Plans for training reclassified employees should be developed to make sure former exempt employees properly track their work time, do not engage in pre- or post-shift work without authorization, do not work during lunch, do not use their smart phones for business purposes while not scheduled to work, properly track their travel time, etc.;
- Decisions must be made regarding the impact on bonus plan eligibility, paid time off, and other benefits on employees who lose their exempt status;
- If employees impacted by the new regulations are covered by collective bargaining agreements, strategies for either increasing their salaries to retain their exempt status, or converting them to non-exempt status, may require negotiations;
- Supervisors should be trained as to how to manage the schedules and timekeeping obligations of reclassified employees; and
- Plans for dealing with budgeting issues triggered by the new rules, for not only the immediate roll-out, but also future years due to anticipated annual indexing, should be undertaken.
Waiting until the new regulations are finalized may not leave enough time to implement new structures and procedures during the short period anticipated before the regulations become finalized. The regulations, when finalized, could have significant impact on many employers and employees, and the more preparation done now, the better employers will be able to respond. Options exist with respect to many of the areas discussed above, and experienced wage and counsel should be consulted to assist in this planning process.