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August 02, 2019
Dueling Proposals to Raise Salary Threshold for FLSA's White-Collar Exemption

By Eric Oppenheim, Executive Director WorkPlace HR

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The first 2 years of the Trump administration might have seemed quiet from a regulatory standpoint as many appointed positions remained unfilled. However, there has been some movement in recent weeks, with the introduction of proposals to amend the Fair Labor Standards Act (FLSA) through the regulatory and legislative process.

Overtime exemptionThe FLSA entitles nonexempt workers to receive the minimum wage for all hours they work in addition to overtime pay at 1½ times their regular rate when they work more than 40 hours in a workweek. The secretary of the U.S. Department of Labor (DOL) has broad authority to "define and delimit" the FLSA's overtime exemptions. The salary threshold for the white-collar exemption hasn't changed in more than 15 years. Both the current administration and lawmakers are proposing changes to raise the salary cutoff.

In March, the DOL unveiled its plan to set the minimum salary threshold for the white-collar exemption at $35,308 by "borrowing" the methodology used in the 2004 test, which roughly pegged the salary threshold at the 20th percentile for pay in the lowest-paid census region and the retail industry.

Additionally, the DOL intends to propose that the salary threshold be updated periodically to ensure it continues to provide a useful test for the exemption. By contrast to the DOL's proposal during the Obama administration, future salary threshold updates wouldn't be automatic but would continue to require notice-and-comment rulemaking. The rule has always been a combination of an objective and a subjective test—a standard that has been overlooked.

The DOL's current proposal is quite a departure from the proposed change to the white-collar exemption announced by the Obama administration in 2016. That proposal would have set the salary threshold for white-collar employees at the 40th percentile of wages in the lowest-paid census region, which is currently the South.

The Obama rule would have more than doubled the current salary threshold of $23,660, which was set in 2004. Additionally, the proposal would have established a mechanism for automatic annual increases to the salary threshold based on either the 40th percentile figure or inflation.

Advocates for the Obama rule insisted it would raise wages for all workers, while opposition groups argued that setting such a high salary threshold for the white-collar exemption would have a negative impact on employee compensation, workplace flexibility, and morale. A Texas federal judge's decision to block implementation of the Obama rule provided an opportunity for the Trump administration to revisit the regulations and adjust the standards under which overtime is calculated.

In response to the DOL's latest proposal, Democratic lawmakers in the House of Representatives have introduced the Restoring Overtime Pay Act, which would require employers to pay overtime to all workers who earn less than $51,000 per year, launching a broadside at the DOL's plan to set the threshold at around $35,000. Proponents contend that a change to the white-collar salary threshold is long overdue, and the threshold proposed by the DOL is inadequate.

Because the expected effective date for the implementation of a new white-collar salary threshold is January 2020, employers and HR professionals should begin to prepare for changes now. With a likely increase in the salary threshold on the horizon, reclassifying exempt employees is an option to consider, but it's important to evaluate both the positive and the negative impact of doing so.

There are additional options to consider when addressing both employee classification and your compensation structure, all of which are more robust and will have an economic impact within your organization.

Regardless of which proposal is eventually enacted, HR professionals and employers should begin preparing for the final rule but wait to make changes. Additionally, employers should take this opportunity to review workers' job duties and correct any exempt classification errors. Compliance will take more time than you anticipate, and preparation will be key.

Eric H. Oppenheim recently joined WorkPlace HR, LLC, an HR consulting firm affiliated with Fortney & Scott, LLC. Oppenheim is an accomplished business owner and senior operations and HR professional with more than 20 years' experience leading high-performing teams in the service and hospitality industries. His entrepreneurial approach to leadership and management skillsets will provide value-added HR services to both WorkPlace HR and Fortney & Scott clients. You can reach him ateoppenheim@workplacehr.com.

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