Why it matters

The Department of Labor (DOL) has released a request for information (RFI) on the white collar exemption to the Fair Labor Standards Act’s (FLSA) overtime rule, seeking input on how to update the exemption. Under the Obama administration, the agency released a final rule—originally set to take effect Dec. 1, 2016—that would have raised the salary floor to $913 per week, or $47,476 annually. The rule faced multiple lawsuits, with one of the cases still pending before the U.S. Court of Appeals, Fifth Circuit. Instead of changing the final rule, the DOL took an additional step back with the RFI, characterizing it as “an opportunity for the public to provide information that will aid the department in formulating a proposal to revise these regulations.” Specifically, the agency asked for comments on whether the salary level set by the final rule effectively identifies employees who may be exempt or whether a different salary level would be more appropriate or effective, as well as if a test for exemption that relies solely on the duties performed by the employee (without regard to salary) would be preferable to the current test. Comments will be accepted until Sept. 25.

Detailed discussion

In May 2016, the Department of Labor (DOL) published the final regulations updating the so-called white collar exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

Pursuant to the final rule, the agency increased the minimum salary threshold from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year), equal to the 40th percentile of weekly earnings for full-time salaried workers working in the lowest-wage census region.

But before the final rule could take effect as scheduled on Dec. 1, 2016, a coalition of 21 states filed suit, seeking a preliminary injunction. After reviewing the history of the FLSA and the white collar exemption, a federal court judge granted the motion. The DOL appealed to the U.S. Court of Appeals, Fifth Circuit, where the case remains pending.

With the change in administration, the DOL adopted the position that while the Secretary of Labor has the authority to establish a salary level test, the DOL has elected not to advocate for the specific salary level set in the final rule, electing instead to undertake further rulemaking to determine what the salary level should be.

To that end, the DOL issued a request for information (RFI), opting not to jump into a notice of proposed rulemaking (NPRM) yet. “The Department believes that gathering public input on the questions below will greatly aid in the development of an NPRM and help us move forward with rulemaking in a timely manner,” according to the RFI.

The DOL recognized stakeholder concern that the standard salary level in the final rule was too high and inappropriately excluded from exemption too many workers who pass the standard duties test.

“The Department invites comments on the 2016 revisions to the white collar exemption regulations, including whether the standard salary level set in that rule effectively identifies employees who may be exempt, whether a different salary level would more appropriately identify such employees, the basis for setting a different salary level, and why a different salary level would be more appropriate or effective,” the DOL said.

More specifically, the RFI wondered if updating the 2004 salary level for inflation would be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used. The DOL questioned whether use of the 2004 salary level would require changes to the standard duties test and, if so, what changes would be necessary.

Alternatively, the DOL queried whether the regulations should contain multiple standard salary levels and how such a system would be set—by size of employer, census region, census division, state, metropolitan statistical area or some other method. Maybe the DOL should set different standard salary levels for the executive, administrative and professional exemptions as it did prior to 2004, the RFI suggested, questioning what the impact would be if it switched back to this model.

The DOL asked for input on which methodology works best with the standard duties test—the short test salary level, the long test salary level or some other option—and whether the standard salary level set in the final rule would work effectively with the standard duties test or whether it eclipsed the role of the duties test in determining exemption status.

The RFI asked what kind of preparations employers undertook in preparation for the 2016 effective date of the final rule, such as increasing the salaries of exempt employees to retain their exempt status or converting worker pay from salary to hourly wages, and also wondered what the impact of these changes has been.

Would a test for exemption that relies solely on the duties performed by the employee without regard to the amount of salary paid by the employer be preferable to the current standard test? The DOL also requested that stakeholders weigh in on whether the salary level in the final rule excluded from exemption particular occupations that have traditionally been covered by the exemption.

For the first time, the final rule permitted nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. Is this an appropriate limit, the RFI questioned, or should the regulations feature a different percentage cap?

Finally, the DOL asked for discussion on the highly compensated employee exemption, including whether there should be multiple total annual compensation levels (and if so, how they should be set) and if this standard salary level should be automatically updated on a periodic basis (and what mechanism should be used).

Comments will be accepted for 60 days.

To read the RFI, click here.