Summary of My Comments to the DOL’s Proposal to Raise the Salary Threshold for Executive, Administrative, and Professional Employees
The Salary Threshold and Indexing
The Department’s NPRM (Notice of Proposed Rulemaking) to raise the salary threshold has, like any regulatory change, provoked the consternation one would expect. We should all remember that the Fair Labor Standards Act is a worker protection statute of truly basic simplicity. The law has been complicated by numerous exemptions that only Congress can address. This particular “white-collar” exemption is an exception. Congress asked the Department to “define and delimit,” (not create or expand) the executive, administrative, professional, and outside sales exemption, a point that must be recognized.
This proposal may truly cause a paradigm shift. Or perhaps the proposal is actually a response to a paradigm shift? The ideal of a floor for wages and a ceiling for hours has been lost on many employers and employees alike. This is readily apparent to those who spend time reviewing the increasingly disparate and sometimes ludicrous FLSA litigation of the last several years. Worker demand for an increase in the minimum wage and overtime protections has grown while the way business is done has dramatically and fundamentally changed in all industries. Technological innovation, global competition, changing expectations, and shifting demographics all have their place in the larger discussion of wage parity and “work-life balance”, but the crux of the Department’s responsibility is to make sure that the majority of employees receive, at the very least, minimum wage and overtime pay. The proposed salary threshold increase will probably serve that purpose for a larger group of workers.
If finalized, the NPRM will be a disruption, and it will require quite a few businesses to adjust because the salary test has eroded so significantly. The Department has focused the public’s attention on the overtime protections that this regulatory change will afford employees, but it must be stressed that this exemption is also an exemption from minimum wage protections. It is little known that the current salary threshold is so significantly low that many employees who have exempt duties work enough hours that their salary is less than what they would earn if they worked for minimum wage.
A salary level of $23,660 is too low to afford protection to employees or provide a bright-line test for employers. If indexing had been in place all along, this would not have been the case. There is no time like the present to experiment with indexing. The bulk of labor economics theory is based on a concrete and limited set of assumptions that may be of interest as a model, but only trial and error will reveal whether a modality will serve its purpose in the real world. At the very least, indexing will alleviate the future shock of a major change like the current proposal.
The Duties Test
As the Department points out, litigation has resulted in part because the low salary test has made the main question whether an employee meets the duties tests of the exemption, rather than one of salary level. I doubt that litigation will decrease markedly until the rules that govern the duties tests are dramatically improved. Modifications to the duties tests are both warranted and overdue, but the final rule should make no changes to the duties test at all. I opposed this outright in my comments.
If you reviewed the content of the questions the Department asks about the duties tests, you would find they are very limited. Most of their questions are focused on the executive exemption and the concurrent duties for managers in the retail/service sector. These questions represent a fraction of all that needs to be addressed. Quite importantly, this rule change will not address computer-related occupations and inside sales positions, which the Department has limited ability to regulate in the first place. This rule change will not address the outside sales exemption, which the Department should not ignore, as it does in this NPRM. It does not address the administrative duties test or the professional duties test. In fact, these are barely mentioned, if at all. I think that is as it should be as long as the final rule will not include a change to the duties test. The salary test warrants its own NPRM. Moreover, any regulatory change to the duties test should be in the form of an NPRM. The questions that must be asked and answered are serious and far-reaching. Administrator interpretations cannot replace formal rulemaking on such a serious and far-reaching set of regulations. The next rewrite of the duties tests should take an approach that is much different than the 2004 rewrite. That topic is a different article for another day.
Is bonus or incentive pay an acceptable way to meet the salary test?
I opposed a proposal that employers be allowed to meet the salary requirements by including bonus and incentive payments. The Department set parameters that this payment would be non-discretionary and made at least on a monthly basis with no catch-up payment allowed. It also limited the portion of the payment that could be attributable to meeting the salary requirements to 10% of the total pay. The Department asked for input on including commission payments, while it simultaneously cautioned employers about the implications of those payments to meeting the duties test, since commissions are typically paid for non-exempt work, that is to say, sales. It is already hard enough to discern what constitutes payment on a salary basis without complicating the matter with such a minuscule concession, mathematically speaking.
Using Mathematical Examples to Explain the “Minimum Guarantee Plus Extras”
Because I focused on what would make the salary provisions easier to implement, I proposed that the Department provide several realistic mathematical examples for the benefit of employers who seek to comply by paying the salary as a “minimum guarantee plus extras” (Regulation 541.604). The examples in the stated section are targeted at the retail/services industry, more specifically, management staff in restaurants. The parameters of this little-explained concept must be spelled out for other industries. Neither Departmental nor judicial guidance has been sufficient. The dramatic increase in the salary threshold will make this previously little regarded section of the Regulation compelling in a potentially costly way for employers.
The Expected Final Rule and What to Do in the Meantime
I have received numerous calls and emails asking me when the proposal might be finalized. The DOL received almost 300,000 comments. They have to read all of them and then prepare a response. A politically popular date would be Labor Day 2016. Not as a predictor, but as a historical note, the Carter Administration proposed a salary revision that was never implemented. As an employer, I would find that information only academically interesting. I believe there will be a change to the salary threshold, and I believe it will be significant.
Many attorneys and practitioners are urging employers to immediately review their compliance plans and prepare for dramatic change. I like to think that my clients are receiving their annual “checkups,” as it were, and I hope this can be a point of discussion during a regular review instead of a last-minute response to a crisis situation. In reality, employers have for so long relied on the duties test in the absence of a helpful salary test that we can hope the changes will, in the end, be more reasonable than they might appear at first. A review instigated in anticipation of changes to salary requirements may reveal misclassification under the duties test and is thus worthwhile even now. Please call me if you would like to discuss the way the final rule may impact your business.
For my full comments, click on the following link: http://www.regulations.gov/#!documentDetail;D=WHD-2015-0001-5738