On March 14, 2016, the Department of Labor (DOL) forwarded to the Office of Management and Budget (OMB) its final changes to proposed revisions to the rules that determine which employees are exempt from overtime and minimum wage requirements. According to the Society for Human Resource Management (SHRM), the new rules are expected to affect millions of employees currently considered exempt from overtime, requiring them to be reclassified as nonexempt. Almost immediately, however, on March 17, 2016, House and Senate Republicans introduced legislation to block the rules from going into effect.
The proposed DOL rule was first published on July 6, 2015, and received more than 250,000 comments by the close of the comment period on September 4, 2015. Now that the OMB has the final changes made after the comment period, there is a review period, which could last from a few weeks to several months. At that time, the final rule will be published in the Federal Register, with an effective date within 60 days of publication. Just before the news of the rule’s advancement to OMB, Tammy McCutchen, an employment law attorney in Washington, D.C. and a former administrator of the DOL’s Wage and Hour Division, stated she believed the rule would work its way quickly through OMB and most likely be published by July 7, and take effect on Labor Day, Sept. 5. Alternatively, she said, the rule would be published the Friday before Labor Day, Sept. 2, to take effect Nov. 1—just prior to Election Day. Unfortunately, differences between the proposed and final rule will not be made public until the final rule is issued.
Looking at the proposed rule, it raises the minimum salary threshold 113% from $455 per week/$23,660 per year to $970 per week/$50,440 per year for exempt workers and calls for annual increases in the minimum salary threshold. SHRM estimates it will result in 10 million employees being reclassified from exempt to nonexempt over the next 10 years, with 4.6 million workers facing reclassification in 2016 alone. The minimum salary threshold triggers exempt status if the employee also meets the requirements of the so-called duties tests. The DOL also proposed that the new annual compensation level for highly compensated employees (those who are exempt without regard to job duties) be increased from $100,000 to the 90th percentile of annual wages of all full-time salaried workers. The DOL projected that the 90th percentile annual compensation level in the final rule will be $122,148.
Of note for school districts is that teachers are exempted entirely from the salary threshold, i.e., they are considered exempt regardless of the method or amount of pay assuming they meet certain qualifications, and that is not expected to change. In its Fact Sheet #17D, DOL explains the exemption for teachers as follows:
Teachers are exempt if their primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment. Exempt teachers include, but are not limited to, regular academic teachers; kindergarten or nursery school teachers; teachers of gifted or disabled children; teachers of skilled and semi-skilled trades and occupations; teachers engaged in automobile driving instruction; aircraft flight instructors; home economics teachers; and vocal or instrument music teachers. The salary and salary basis requirements do not apply to bona fide teachers. Having a primary duty of teaching, tutoring, instructing or lecturing in the activity of imparting knowledge includes, by its very nature, exercising discretion and judgment.
Thus, the main concern for school districts are those employees who do not teach and do not make $50,440 per year but otherwise have met the requirements for exemption in the past. Those employees will need to be reclassified as nonexempt or will have to have salary increases to bring them above the threshold. The implementation of this will be difficult depending on the effective date of the rule and the timeline for approving a district’s compensation plan. It makes sense to start planning ahead for how your district will be impacted.
The proposed rule published in July also asked for commenters to comment on changes to the duties tests, typically thought of as the executive, administrative, and professional exemptions. It remains to be seen what the final rule might have to say about those duties tests.
According to SHRM, the Protecting Workplace Advancement and Opportunity Act (S. 2707 and H.R. 4773) would:
Nullify the proposed rule.
Require the DOL to first conduct a comprehensive economic analysis on the impact of mandatory overtime expansion to small businesses, nonprofit organizations and public employers.
Prohibit automatic increases in the salary threshold.
Require that any future changes to the duties test must be subject to notice and comment.
While some Democrats have expressed concern about the proposed overtime rule, James Swartz, an employment law attorney in Atlanta, said the bill “is not a bipartisan affair. Senate and House Republicans are attempting to force the DOL and, more pointedly, this administration, to delay the implementation of the new rules.” He said the Congressional Review Act “looms here, as it gives Congress 60 legislative days to effectively veto (via resolution) any regulation following OMB review. If Congressional Republicans can slow down the OMB review, they may be able to extend those 60 days past the inauguration of a new president. While President Obama—or a President Clinton or Sanders—would likely veto such a Congressional disapproval resolution, causing the rule to become effective, a President Trump or Kasich or Cruz or TBD [to be determined] likely would allow the disapproval to stand, thereby scuttling” the DOL rule. In the meantime, a group of Democratic lawmakers has urged the OMB to move quickly on its review of the pending overtime rule “so it can take effect as soon as possible.”
Legal Challenge through Litigation?
Even if the proposed legislation or other Congressional action goes nowhere, there may still be legal challenges to the DOL rule, particularly surrounding any changes to the duties tests that were not published in the proposed rule. All of the uncertainty surrounding DOL’s overtime proposals certainly makes the issue one to watch.