As Secretary of Labor Alexander Acosta testified in early June, the Department of Labor’s (DOL) Wage and Hour Division (WHD) has issued its request for information (RFI) on the Part 541 overtime regulations that were finalized in 2016. In this RFI, the DOL is seeking new comments, data, and information on an appropriate salary level for bona fide executive, administrative and professional exempt employees pursuant to section 13(a)(1) of the Fair Labor Standards Act (FLSA), as defined in the Part 541 regulations. This RFI will be published in the Federal Register on Wednesday, July 26, 2017.
In its RFI, the DOL specifically has requested responses to 11 sets of comprehensive questions, as follows:
- “Would updating the 2004 salary level [of $455 per week] for inflation be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used? Alternatively, would applying the 2004 methodology,” which excluded from the exemption roughly the bottom 20 percent of salaried employees in the South and in the retail industry, “to current salary data (South and retail industry) be an appropriate basis for setting the salary level? Would setting the salary level using either of these methods require changes to the standard duties test and, if so, what change(s) should be made?”
- “Should the regulations contain multiple standard salary levels? If so, how should these levels be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? For example, should the regulations set multiple salary levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? What would the impact of multiple standard salary levels be on particular regions or industries, and on employers with locations in more than one state?”
- “Should the Department set different standard salary levels for the executive, administrative and professional exemptions as it did prior to 2004 and, if so, should there be a lower salary for executive and administrative employees as was done from 1963 until the 2004 rulemaking? What would the impact be on employers and employees?”
- In light of the discussion of the pre-2004 long and short test salary levels in the 2016 final rule, “should the standard salary level be set within the historical range of the short test salary level, at the long test salary level, between the short and long test salary levels, or should it be based on some other methodology” in order to be an effective measure of exempt status? “Would a standard salary level based on each of these methodologies work effectively with the standard duties test or would changes to the duties test be needed?”
- “Does the standard salary level [of $913 per week] set in the 2016 Final Rule work effectively with the standard duties test or, instead, does it in effect eclipse the role of the duties test in determining exemption status? At what salary level does the duties test no longer fulfill its historical role in determining exempt status?”
- “To what extent did employers, in anticipation of the 2016 Final Rule’s effective date on December 1, 2016, increase salaries of exempt employees in order retain their exempt status, decrease newly non-exempt employees’ hours or change their implicit hourly rates so that the total amount paid would remain the same, convert worker pay from salaries to hourly wages, or make changes to workplace policies either to limit employee flexibility to work after normal work hours or to track work performed during those times? Where these or other changes occurred, what has been the impact (both economic and non-economic) on the workplace for employers and employees? Did small businesses or other small entities encounter any unique challenges in preparing for the 2016 Final Rule’s effective date? Did employers make any additional changes, such as reverting salaries of exempt employees to their prior (pre-rule) levels, after the preliminary injunction was issued?”
- “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? If so, what elements would be necessary in a duties-only test and would examination of the amount of non-exempt work performed be required?”
- “Does the salary level set in the 2016 Final Rule exclude from exemption particular occupations that have traditionally been covered by the exemption and, if so, what are those occupations? Do employees in those occupations perform more than 20 percent or 40 percent non-exempt work per week?”
- “The 2016 Final Rule for the first time permitted non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Is this an appropriate limit or should the regulations feature a different percentage cap? Is the amount of the standard salary level relevant in determining whether and to what extent such bonus payments should be credited?”
- “Should there be multiple total annual compensation levels for the highly compensated employee exemption? If so, how should they be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? For example, should the regulations set multiple total annual compensation levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? What would the impact of multiple total annual compensation levels be on particular regions or industries?”
- “Should the standard salary level and the highly compensated employee total annual compensation level be automatically updated on a periodic basis to ensure that they remain effective, in combination with their respective duties tests, at identifying exempt employees? If so, what mechanism should be used for the automatic update, should automatic updates be delayed during periods of negative economic growth, and what should the time period be between updates to reflect long term economic conditions?”
The DOL has allowed for a comment period of 60 days from the date of publication in the Federal Register so the comment period ends Monday, September 25, 2017.
In its RFI, the DOL noted the three criteria of exempt executive, administrative, or professional employees that are in section 13(a)(1) of the Fair Labor Standards Act: (1) they are paid on a salary basis (“salary basis test”); (2) they receive a minimum specified salary amount (“salary level test”); and (3) their jobs primarily involves executive, administrative, or professional duties defined in the regulations (“duties test”). It also briefly summarized the history of changes in the amount of the salary level test from its initial amount of $30 per week in 1938 to the $455 per week standard salary level established in the 2004 regulations to the 2016 rulemaking salary level of $913 per week, which was enjoined by a federal court.
The DOL is reviewing the impact of the 2016 final rule’s changes to the overtime regulations with a focus on lowering regulatory burden—consistent with Executive Order 13777 in which President Trump had tasked federal agencies with identifying regulations for repeal, replacement, or modification.
By way of a brief background, last year the Obama DOL finalized a Part 541 rule that dramatically increased the salary level from the current $23,660 per year to $47,476 per year. The United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction that prevented the DOL from enforcing the new salary level that was scheduled to go into effect on December 1, 2016. This injunction was later appealed to the Fifth Circuit Court of Appeals. Ogletree Deakins’ Overtime Solutions Center provides details and updates on all the developments with the litigation. The RFI notes that the litigation involves the DOL’s authority to establish an appropriate salary level test and that its reply brief to the Fifth Circuit Court of Appeals does not advocate for the specific $913 per week salary level because the DOL intends to engage in further rulemaking on an appropriate salary level. Owing to the litigation, the DOL decided to issue this RFI as opposed to publishing a notice of proposed rulemaking (NPRM).
By issuing the RFI, the DOL represents that the public’s input will be of great assistance in developing an NPRM and will enable the DOL to proceed with a timely rulemaking. The RFI also serves as an indication of the priority that the DOL places on issuing a new Part 541 final rule that contains a reasonable salary level test. As noted above, the regulations have had a salary level test since 1938, and the DOL has recognized on multiple occasions that the salary level test is the best single indicator of exempt status. Additionally, the DOL has stated that the salary level test complements the duties tests and they work “in tandem” to identify bona fide executive, administrative, and professional exempt employees.
While the 2016 rulemaking did not modify the duties tests for these exemptions, several of the questions in the RFI seek information about the standard duties tests, including the propriety of a duties-only test. Regardless of whether the DOL does propose changes to the duties tests in a subsequent NPRM, this RFI signals an intent to moderate the excessive salary level test adopted in 2016 and presumably to set the salary level at an amount that will work in tandem with the duties tests to identify employees who are eligible for these exemptions. This is the first step in the administrative rulemaking process that hopefully the DOL can navigate quickly in order to propose an NPRM and soon thereafter to finalize a new rule.
