Short Period to Comply Likely For Expected Rule on Overtime

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By Michael Baer

Employers should start preparing now as the Labor Department moves closer to releasing its final rule to change the salary-basis threshold amounts for exempting workers from overtime pay, a former Wage and Hour Division official said March 14.

After the final Fair Labor Standards Act coverage rule is published, employers likely would have two months to comply, said Tammy McCutchen, a labor and employment lawyer at the firm Littler Mendelson PC. Determining whom to reclassify and implementing that change generally takes up to six months, said McCutchen, a former administrator of the Labor Department's Wage and Hour Division under President George W. Bush.

“Business partners need to understand the possible budgetary impact of the salary-level increase,” McCutchen said at the Society for Human Resource Management's annual Employment Law and Legislative Conference in Washington.

New Compensation Plans

The rule, as proposed June 30, 2015, would modernize the white-collar overtime exemption under the FLSA to extend overtime protection to most salaried workers earning less than $50,440 a year, or $970 a week, in 2016. Under existing regulations, last updated in 2004, the standard salary required for an executive, administrative or professional employee to qualify for exemption from FLSA overtime requirements is $23,600 a year, or $455 a week.

The proposed the rule also would increase the total annual amount that highly compensated employees must earn to qualify for the exemption to $122,148 from $100,000, and would establish a way to automatically update the salary and compensation levels.

The final text of the new rule is being reviewed by the Office of Management and Budget, the last administrative step in the rulemaking process before publication and implementation.

The proposed rule would more than double the minimum salary for the FLSA overtime exemption to $50,440 a year.

To effectively prepare, employers should first identify employees who need to be reclassified, such as anyone paid less than $60,000 a year, develop a new compensation plan for the reclassified employees, review wage-hour policies and processes, communicate the changes and train the reclassified employees and managers, McCutchen said.

Now is the time to “get rid of past mistakes” in this area “and blame it on the government,” by attributing reclassification to the changing regulations, McCutchen said.

Rule Implementation Date Unclear

While Labor Secretary Thomas Perez told Bloomberg BNA in December 2015 that the final rule would be published in spring 2016, McCutchen said the release and implementation could come in September and November, tied to the political calendar in this presidential election year.

McCutchen said she previously expected the regulations to be published July 7, with an effective date of Sept. 5, Labor Day. But she thinks it would be possible for the final rule to be published Sept. 2, which would make it take effect Nov. 1, one week before Election Day. The timing would allow the rule's official backers to say, “We're giving America a raise,” at a more opportune time in the election cycle, she said.

Legal challenges to the final rule are likely, McCutchen said.

A Congressional Research Service report said in February that final rules submitted after May 16 would be subject to disapproval in 2017 under the Congressional Review Act.

A representative from WorldatWork, a nonprofit association for those focused on compensation, benefits, work-life effectiveness and total rewards, told Bloomberg BNA March 31 that “we continue to hear that the administration is trying to get the final overtime regulations published before … May 16,” the deadline for congressional regulatory authority for this rule. Melissa Sharp Murdock, WorldatWork's senior manager of external affairs, also said the Office of Information and Regulatory Affairs “should consider that the Department of Labor needs to conduct a more robust economic analysis of the proposed rules before they can be finalized.”

Bills introduced March 17 in the House (H.R. 4773) and Senate (S. 2707) would nullify the rule as proposed and require the Labor Department to conduct economic analysis on further proposed changes before any such rule could take effect.

Martin Berman-Gorvine contribute to this report.

To contact the reporter on this story: Michael Baer mbaer@bna.com

To contact the editor responsible for this story: Michael Trimarchi mtrimarchi@bna.com