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► DOL Issues Long-Awaited Proposed FLSA Amendments

Since late 2016, when the Obama administration's proposed Fair Labor Standards Act (FLSA) amendments were challenged and eventually struck down in court, the business world has been waiting for what would come next. In March, the current U.S. Department of Labor (DOL) issued its proposed amendments to various regulations governing the FLSA. Consistent with campaign-trail promises, these amendments represent a much more employer-friendly approach to the issues.

New Minimum Salary Levels with Bonuses, Commissions

The most common FLSA exemption is for employees working in bona fide "white-collar" positions. In addition to various job duties tests, these exemptions require the employer to pay the employee a specified minimum fixed salary.

Since 2004, the minimum has been $455 per week, or $23,660 per year. The proposed regulations would increase it to $679 per week ($35,308 annually). This figure is significantly lower than the $913 per week ($47,476 annually) proposed back in 2016.

The white-collar exemptions also allow for exempt status based on a less stringent job duties test for "highly compensated employees." That provision requires the employee to be paid at least the minimum salary (discussed above) and receive total compensation over the course of a year of at least $100,000.

Total compensation includes salary plus commissions, bonuses, and other types of incentive pay, which can be provided at any point during the year (including near year's end to ensure the employee meets the requirements). Under the DOL's current proposal, the total compensation threshold to be considered highly compensated would increase to $147,414.

Marking a change from the current law—and in recognition of how many employers compensate their salaried employees—DOL's proposal would allow employers to cover up to 10% of the minimum salary (so up to $3,530 per year) through nondiscretionary bonuses, incentives, and commissions as long as those payments are made annually or more frequently. Currently, these various incentive payments cannot be used to satisfy the minimum salary.

What's Not Changing?

Consistent with its theme of simply updating and streamlining the regulations, the DOL did not propose any changes to the various job duties tests (executive, administrative, professional, etc.) applicable for exempt status. Unlike the proposed 2016 amendments—which would have required automatic annual updates to the minimum salary based on certain benchmarks—the current proposal contains no such requirement.

The DOL's commentary states the agency is committed to periodically reviewing and updating the salary figures going forward, but the absence of any provision in the regulations to do that means any future changes to the salary levels would require the same prolonged notice and comment rulemaking process it is doing for the current amendments.

Regulations Interpreting Overtime Calculations

Through a separate announcement, the DOL also recently proposed amendments to the regulations governing the "regular rate," which is the term used to describe the rate on which overtime is calculated. These amendments don't significantly change the overtime landscape but will provide "clarity" so the rules "better reflect the 21st-century workplace."

Historically, the DOL has taken the position that payment for unused vacation need not be included in the regular rate, but payment for unused sick leave (analogizing it to an attendance bonus) had to be included. With the increasing use of combined paid time off policies, there was some uncertainty about how this would be handled. The DOL's proposal would adopt the clear view that payments for any unused leave (including sick leave) need not be included in the regular rate.

Overtime on Bonuses

Discretionary bonuses have always been excludable from the regular rate, but it hasn't always been easy to determine whether a bonus is discretionary. The proposed regulations don't change the underlying rule, which defines a discretionary bonus as one in which the decisions regarding whether and how much to award are kept at the employer's discretion until a time near when it is awarded.

Even when the requisite discretion has been kept, the fact that the employer has announced the possibility of a bonus being awarded has generated uncertainty about how the DOL would view it. The proposal tries to clarify this issue by providing some examples of bonuses that could qualify as discretionary. The most notable example is an employee-of-the-month bonus, which is typically a program known in advance but which no employee has a right to expect.

Miscellaneous Benefits

Many employers are getting creative in the additional compensation forms they provide, such as gym memberships, free parking, on-site medical treatments or consultations, and wellness initiatives (nutrition, weight loss, smoking cessation programs, and the like).

Other creative employee benefits include discounts on the employer's retail goods or services and tuition assistance payments. Because these types of compensation weren't around when the regulations were originally crafted, it wasn't always clear how they would fit into the regular rate scheme. The DOL's proposal specifically identifies these (and some others) as examples of payments that may be excluded.

Not Final Yet, but . . .

At present, the amendments are just proposals. The law requires the DOL to publish its proposed changes and give the public 60 days to review and comment on them. The comment periods ran through May 21 for the salary amendments and May 28 for the regular rate amendments.

Following the close of the comment periods, the DOL evaluates the comments and determines whether any changes should be made to its proposals. At some point, presumably later this year, it will issue final rules stating the amendments in their final form, along with specific effective dates.

The rulemaking process doesn't impose any timeline on the DOL for when it must issue a final rule. It seems likely, however, the agency will get the new regulations in place (at least the salary changes) with enough time for them to be touted during the campaigns leading up to the 2020 elections. With that in mind, an effective date in early 2020 is not an unreasonable expectation.

By Forrest Rhodes. Mr. Rhodes practices employment law with the firm Foulston Siefkin LLP. 

[6/2019]

 

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