Delay In FLSA Proposed Rule

Companies should begin to prepare their budgets now for a Fair Labor Standards Act (FLSA) proposed rule that is currently expected in the first quarter of 2015. Originally the FLSA proposed rule was forecasted to be issued in November 2014. The last major overhaul of the regulations was in 2004.

The Department of Labor (DOL) wouldn’t confirm or deny that the proposed rule was months away when asked about the time frame.  The DOL has said they are continuing to work diligently to construct an updated overtime rule.

At this time, anticipating changes to the white-collar exemptions is guesswork but it is expected that the minimum salary threshold level for a white-collar exemption is anticipated to increase from the current $455 per week or $23,660 per year.

Based on a recommendation by the Economic Policy Institute and funded by the DOL, there would be a significant increase to the salary level of $970 per week or $50,440 per year.  This is justified by indexing for inflation the 1975 short test salary of $250 per week.

A standard similar to California’s requirement that an exempt employee be primarily engaged in exempt duties at least 50 percent of their work time might be considered by the DOL.

Already requiring employers to pay higher minimum weekly salary thresholds than the FLSA are California and New York.  Currently the threshold is at $600 per week, increasing to $675 per week by 2016 in New York. California’s is at $720 per week, increasing to $800 per week by 2016. Production, service and retail industries that have substantial numbers of low-paid supervisors would be impacted the most by an increase in the minimum salary.

Concern has been expressed about managers in retail being exempt if they spend much time on such tasks as stocking. Some restaurants, anticipating changes to the executive exemption, already are giving up and reclassifying assistant managers as nonexempt. Many employers may already assume that the impact will be to significantly tighten parameters of who may and may not be considered to be exempt.

It’s not certain that the proposed regulations would provide a safe harbor for ethical employers who want to remedy a wage or hour violation under the belief that they were complying with the law.  Many feel this would be a mistake by the administration.

A revision of the FLSA regulations, in the past, has taken 17 months from the issuance of the proposed rule to the effective date.

Employers should start looking at classifications once a proposed rule is issued, as there aren’t likely to be a lot of changes between the proposed and final rules. Following a final rule, there may not be enough time for employers to make the changes needed to avoid the scrutiny of the DOL.

It can be expensive for an organization to perform an internal audit of FLSA classifications. A review would include evaluations of job descriptions and interviews with employees all while becoming familiar with new regulations.  The human resources information system may have to be updated with adjustments for benefits if reclassification is needed and compensation itself may have to be completely redone.

At a time when many employers are budgeting for the following year, deciding raises or changes in benefits, considering expanding or contracting their workforces, or evaluating the exemption status of employees under the current rules the delay does prolong the period of uncertainty. 

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