Approximately three months after the comment period closed on the proposal from the Obama administration and U.S. Department of Labor (DOL) to revise the Part 541 overtime regulations, the DOL issued its Fall 2015 Semiannual Regulatory Agenda that includes a statement on the timing for a final overtime rule. According to the regulatory agenda, the DOL expects to publish the final rule in July of 2016.
Period for Filing Comments Ends and Period for Reviewing Comments Begins
The regulatory proposal, which was published in the Federal Register on July 6, 2015, provided for a 60-day comment period, which closed on September 4, 2015, with some 290,723 comments received. The proposal’s comment results page indicates that commenters voiced their concerns about both the overtime rule’s compensation requirement and the duties test.
The comments came from a variety of employers and trade associations across various industries, including construction, life sciences, and retail, and from both for-profit and nonprofit companies. Similarly, employees, employee advocates, labor unions, and other progressive groups filed comments in support of the proposed rulemaking. The feedback ranged from comments describing the proposal as catastrophic to long overdue to not having gone far enough.
Timeline to the Final Rule
The DOL must now review all the comments and prepare a preamble and final rule to address them, even though admittedly many of the comments were form letters submitted electronically. It must then submit its preamble and final rule to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) for review and possible revision. Based upon the agency’s 2004 rulemaking, we previously estimated that this process would take approximately 10 to 12 months—putting the publication of a final rule well into the third quarter of 2016. Thus, the regulatory agenda’s prediction of July 2016, for publication of a final rule really does not give us greater insight into the timing of a final rule than we already had. In fact, the predicted date of a final rule in the regulatory agenda may not be realistic at all. Recall that earlier versions of the DOL’s regulatory agenda predicted the proposed rule would be published initially in November 2014, then February 2015, and finally, June 2015, before its actual publication was accomplished in July of 2015.
If anything, the regulatory agenda’s estimate of when the DOL will publish a final rule fuels more speculation and predictions. Perhaps more telling is a recent statement by the Solicitor of Labor, M. Patricia Smith, at an American Bar Association conference where she stated that a final rule was not likely before “late” next year. While the Solicitor did not elaborate on what “late” 2016 means, a more realistic prediction for publication of a final rule would be during the late third quarter, or even the fourth quarter of 2016. Given the tremendous number of comments that must be analyzed and read, this will be a Herculean task that will strain the DOL’s resources. Also, as reflected in the Fall 2015 Semiannual Regulatory Agenda, the DOL has some 96 other regulatory initiatives at various stages in the rulemaking process.
Regulatory Agenda Description of the Overtime Rulemaking
The Regulatory Agenda’s section on “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” includes a “statement of need,” which describes the DOL’s effort to “modernize and simplify” the overtime regulations “while ensuring that the FLSA’s intended overtime protections are fully implemented” as “[c]onsistent with the President’s goal of ensuring workers are paid a fair day’s pay for a fair day’s work.”
The agenda lists the key provisions of the proposed rule to include:
(1) setting the standard salary level required for exemption at the 40th percentile of weekly earnings for full-time salaried workers (projected to be $970 per week, or $50,440 annually, in 2016); (2) increasing the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and (3) establishing a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.
At the time of the proposal, the DOL had not made any substantive proposals for the duties tests. Instead, it requested comments on whether the tests adequately determine whether an employee qualifies as exempt or nonexempt and whether the current tests permit exempt employees to perform a disproportionate amount of nonexempt work. While the Fall 2015 Semiannual Regulatory Agenda does not mention the duties test, the prospect that the DOL will revise the duties tests and significantly increase the salary amount is a grave concern for businesses.
The DOL has an ambitious regulatory agenda, including the overtime final rule, and it will require enormous resources to accomplish it all in the remaining months of the Obama administration. Nonetheless, given the Obama administration’s priority for the overtime rulemaking initiative, the DOL will pull out all the stops to issue a final rule before January of 2017. Of course, any estimate as to the timing of the final rule should not overlook the potential impact that the November 2016 elections could have on this process.
As suggested in our previous blog posts, employers should start planning now so they can be prepared for big changes in the overtime regulations late next year. For example, employers should evaluate strategies for exempt employees who earn less than approximately $50,000 of increasing salaries to exceed the new salary threshold, modifying their job responsibilities, or reclassifying them as nonexempt. Also, the final rule will impact employers’ budgets so employers should consider the possibility of substantially increased compensation or overtime costs for employees who remain exempt at a higher salary level or are reclassified as non-exempt.