On March 13, 2014, President Obama directed the Department of Labor to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. The President’s memo sought to increase the number of workers eligible for overtime and to clarify what has become a murky guidebook for employers seeking to maintain compliance with the FLSA’s overtime exemptions.
In early July 2015, the Wage and Hour Division issued a proposed set of changes to those regulations, including a raise of the minimum salary threshold and attempted clarification of the job duty requirements for FLSA compliance. From there, a 60-day notice and comment period provided anyone who cared to, the opportunity to comment on the proposal. This period ended on September 4, 2015.
After the notice and comment period, the Department was left with over 300,000 comments to sift through. Of those many thousands of comments, the most influential input may have recently come in the form of a letter from Capitol Hill to the Secretary of Labor, wherein over 100 members of the House of Representatives signed a letter expressing concern over ambiguity in the job duty requirements of the new regulations.
This letter provides insight into the prospect that the regulations may receive a formal objection from the Hill prior to their implementation. However, right now, we are simply left to guess at which direction the representatives may turn. While the congressional action may be uncertain, we do know that even with this letter and potential opposition, the Department plans to publish the Final Rule for the regulations in July 2016. From there, employers will likely have a 60-day implementation period to allow for compliance with this significant change.
However, even a 60-day implementation period may be nightmarish for many large employers. Indeed, the Department estimates at least three direct costs to employers as a result of the upcoming change: (1) regulatory familiarization costs; (2) adjustment costs; and (3) managerial costs. Assuming a 7 percent discount rate, the Department estimates that average annualized direct employer costs will total between $239.6 and $255.3 million per year, depending on the updating methodology used. Based on the proposed regulations as written in July 2015, the Department estimates that nearly 4.6 million workers would be impacted.1 Of course, litigation costs are another very real prospect with such a large shift.
To best offset these inevitable costs (especially litigation), employers should begin assessing their entire range of employees currently earning less than $50,440 a year immediately.2 If the Final Rule is published as proposed, any employee earning below that amount will be entitled to minimum wage and overtime, and employers will only have until mid-September 2016 to make sure those changes are in effect, assuming Congress does not formally oppose the implementation of the regulations. Based on the 2015 proposal, $50,044 will serve as a good baseline for employers to begin internal audits. Of equal importance, when considering the continued costs of compliance and exposure to liability, the Department also proposed that the $50,044 increase yearly as the 40th percentile weekly wage does, effectively requiring an annual assessment by employers.
Whatever the threshold number becomes, employers will also need to reassess those employees who earn more than that number pursuant to the new job-duty regulations as well. For help in conducting the above-described audits and in implementing policies in compliance with these new regulations, employers should seek legal assistance today. The Gordon & Rees LLP Atlanta Employment Team is ready to help you with these and all of your other employment-related needs.
1. In Year 1 the Department estimates 4.6 million currently exempt workers who earn at least the current weekly salary level of $455 but less than the 40th earnings percentile ($921) would, without some intervening action by their employers, become entitled to minimum wage and overtime protection under the FLSA (Table ES1).
2. Assuming two percent growth between the first quarter of 2015 and the first quarter of 2016, the Department projects that the 40th percentile weekly wage in the final rule would likely be $970, or $50,440 for a full-year worker.