Department of Labor Proposes Changes to FLSA Regulations

By on August 6, 2015 in Current Events, Pay & Benefits with 0 Comments

Background

On the 13th of March 2014 the President sent a memorandum to the Secretary of the U.S. Department of Labor (DOL) directing that the regulations for the Fair Labor Standards Act (FLSA) be reviewed, updated and modernized.  The President emphasized that the current regulations have not kept pace with our modern economy.  The Secretary was to consider how the FLSA regulations could be revised to update existing protections consistent with the intent of the Act; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply.

On 6 July 2015 the proposed regulations resulting from this review were published.

Proposed Changes

A major consideration in identifying a job as Exempt for those covered by the DOL regulations is examining the salary the employee receives as compensation for the assigned work.  In 2004, the regulations set that salary at $455 per week ($23,660 per annum).

The question the DOL analysts set out to answer is whether that salary test sufficiently distinguishes between those who likely will meet the duties test (and, therefore, would be Exempt), and those who likely do not meet the duties test (and, therefore, would be Nonexempt) without referring to the duties tests.

The analysis concluded that the 2004 salary level did not adequately differentiate between those who are appropriately Nonexempt and those who likely would meet the Exemption requirements.  After documenting the methodology used by the DOL analysts to derive an appropriate amount, the draft regulations have proposed $921 per week ($47,892 per annum) for the new salary basis test (this is the 40th percentile for full-time salaried workers in the first quarter of 2015).

To prevent the salary basis test from becoming outdated, the Department is proposing a second change to the regulations.  This would insert into the regulations a mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of wages or the CPI-U1.

DOL reached out to many of the stakeholders for their recommendations for changes to the regulations.

As compensation practices are changing in private industry many of these stakeholders asked that non-discretionary bonus and incentive payments be included when applying the salary basis test.  In the past the DOL has consistently considered only the actual salary or fee payments made to employees when determining whether they meet the salary basis test.  As a result, DOL is seeking comments on whether to include non-discretionary bonuses for meeting specified performance metrics (for example, non-discretionary incentive bonuses tied to productivity and profitability), in combination with a minimum weekly salary amount, in satisfying the salary level test.

Finally, DOL is asking for comments on whether changes should be made to the duties tests used to determine whether or not a position is properly considered covered by the FLSA or exempt from its provisions.

As part of the notice of proposed changes to the regulations, DOL asks five questions about the duties tests.  One is should any changes be made to the duties tests, while a second asks should employees be required to spend a minimum amount of time on exempt duties to meet the exemption requirements?  A third asks should the DOL regulations parallel the practice adopted by the State of California which requires an exempt employee to spend 50 percent of his/her time on the primary duty of the job?  A fourth question asks should DOL consider returning to a short and long duties tests format, as it did before 2004, where a longer and more detailed set of requirements must be met for exemption when the employee’s salary does not meet the salary test?  And finally, DOL asks does the current executive exemption test that allows concurrent performance of exempt and nonexempt tasks adequately differentiate between exempt executives and employees who are not exempt executives?

As part of the exercise to get input on possible changes to the duties tests, DOL also asks whether additional examples both in computer related jobs and for other kinds of jobs would be helpful for companies when making exemption determinations.

Is There an Impact on Executive Branch Employees if These Proposed Regulations are Approved?

Most Federal managers and employees probably are aware that the FLSA regulations issued by DOL apply only to organizations and companies that are not part of the Executive Branch.  The FLSA statute gave authority to the U.S. Office of Personnel Management (OPM) to issue regulations and guidance for agencies of the Executive Branch to use in making FLSA coverage and exemption determinations.  While the Federal Courts have confirmed this authority, they also have emphasized that such OPM guidance must be consistent with guidelines issued by DOL. (See, for example, AFGE v OPM, 821 F.2d 761 (1987))

Thus, the short answer to the question about DOL’s regulations impacting Executive Branch managers and employees is no, there is no immediate impact if the DOL proposed regulations are approved and/or if DOL decides to make further changes to the duties tests portions of the regulations.

However, in the long term there is a potential impact due to the Courts’ insistence that the DOL and OPM regulations and guidance be consistent.

The first potential impact would result from OPM’s to change section 551.203 of Title 5 of the Code of Federal Regulations that establishes a salary basis test for Executive Branch employees.

Currently, the amount in the OPM regulations mandating coverage is at the same level contained in the DOL regulations, i.e., $23,660 per annum.  Thus, if the DOL raises its salary basis test to $47,892, as proposed in the 6 July 2015 issuance, then it is likely OPM will do so also.  This probably would result in some Executive Branch employees who are considered Exempt from the FLSA currently being covered because of the change in the salary level.

Another potential impact could result from any changes DOL makes to its duties tests.  Should these changes make the DOL requirements significantly different from the current OPM ones, then it is likely that it would be necessary for OPM to change its regulations also.  Such changes would require Executive Branch managers and human resources staffs to examine existing FLSA determinations to ensure that they should remain exempt or be changed to nonexempt under the modified regulations.  This would be a major undertaking especially in those agencies that have no mechanism for regularly reviewing and updating position descriptions and in those agencies that have not yet applied the revised OPM regulations issued in 2007.

Do we have any indication the impact of any changes DOL makes to its FLSA regulations will be felt within the Executive Branch?  The answer to that question is yes.

Cecilia Munoz, who works at the White House as Director of the Domestic Policy Council, was quoted as saying the administration plans to include Federal workers in the new policy.  She went on to say, “The White House is fully in compliance with the applicable laws and regulations now….So we’ll be doing what other employers will do, which is to review our practices to make sure we’re in compliance with this rule….” if it becomes final.  This includes the expectation that OPM will update its policies.

All comments on the proposed DOL FLSA regulations are due on 4 September 2015.  Thus, Executive Branch managers, employees and human resources specialists will want to watch for the final regulations to be issued by DOL sometime after that date.

In order to prepare for any possible changes to OPM regulations that may occur as a result of DOL’s decisions, managers and human resources specialists should start reviewing all existing position descriptions, for General Schedule and Federal Wage System positions as well as for Non-Appropriated Fund jobs to ensure they are current and accurate.  This is easily accomplished at the same time performance reviews are given, typically on an annual basis.  Current and up to date job descriptions will both speed and facilitate any review necessitated by application of the 2007 regulations (if that has not occurred already) and application of future changes to the OPM FLSA regulations.

Endnotes

  1. Consumer Price Index-Urban is defined as: a measure that examines the changes in the price of a basket of goods and services purchased by urban consumers. The urban consumer population is deemed by many as a better representative measure of the general public because most of the country’s population lives in highly populated areas, which represent close to 90% of the total population.  This definition found on 30 July 2015 at: http://www.investopedia.com/terms/c/cpiu.asp.

Wayne Coleman is a federal pay expert available to help your agency avoid premium pay claims through on-site training. Contact him for more information.

© 2016 Wayne Coleman. All rights reserved. This article may not be reproduced without express written consent from Wayne Coleman.

About the Author

Wayne Coleman’s career at various Federal agencies spanned about 32 years.  Since his retirement he has consulted on, written about, and provided training on overtime and premium pay, on the principles of FLSA coverage and exemption, and on related federal compensation issues.  He can be reached at wayneslyhouse@comcast.net.

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