By: Robert Bowes and Alex Jones
In May 2016, we wrote about the U.S. Department of Labor’s (“DOL”) new rule that would increase the minimum salary levels required to qualify as an “exempt” employee under the Fair Labor Standards Act (“FLSA”), and thus no longer be eligible for overtime pay. The new rule, set to go into effect on December 1, 2016, would likely require employers to provide overtime pay to an additional four million workers each year. However, implementation of the rule may be delayed due to growing concerns within the business community and Congress.
As a bit of background, under the new rule, the minimum salary threshold for exempt (i.e. do not qualify for overtime pay) “white collar employees” would be increased to $921 per week/$47,892 per year, and the minimum salary threshold for exempt “highly compensated employees” would be increased to $122,148 per year – almost double the current limits. The DOL further suggested that the salary threshold for both categories be updated on an annual basis automatically, with the increase tied to either a fixed percentile of wages or the Consumer Price Index.
Employers and business owners have harshly criticized the new rule. Employers are concerned the rule is being implemented too quickly, and they are being rushed into making important financial decisions. Specifically, employers will have to decide whether to increase employees’ salaries to have them qualify as “exempt” employees under the FLSA or pay those employees overtime. Employers are also rightfully worried that such a drastic change will impose steep administrative costs.
Two lawsuits and an act of Congress, however, may spare employers from having to scramble to comply with the new rule last minute, at least temporarily. A coalition of 21 states and a collection of business groups (such as the Chamber of Commerce) have brought federal lawsuits challenging the new rule. Both lawsuits present similar theories: (i) the minimum salary cutoff is so high that it effectively eliminates the exemption for individuals who are bona fide white collar workers; (ii) the minimum salary cutoff set by the DOL is “arbitrary and capricious;” and (iii) the rule’s automatic increase provision violates the Administrative Procedure Act because it does not allow for a notice and comment period. The two groups also alleged Constitutional challenges based on legislative overreach. However, there is contradictory Supreme Court precedent directly on point.
The new rule also drew concerns from Congress. On September 28, 2016, the House of Representatives passed a bill that would delay implementation of the new rule for six months. The Bill still needs to pass the Senate and survive a (likely) Presidential veto.
The minimum salary cutoff to be considered “exempt” under the FLSA is still likely to be increased in the future. Employers need to be diligent and actively plan for these changes in order to avoid making rushed decisions with high administrative costs. For more information on the DOL’s new rule and the impact it has on employers, please contact your KJK attorneys.