The American Bankers Association (ABA) and Society for Human Resource Management (SHRM) have recommended that the Labor Department apply a methodology from 2004 as it re-examines the rules defining exemptions from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements.
In 2004, the department created a standard test that did not limit the amount of nonexempt work an exempt employee could do, and it paired the new standard duties test with a salary level test of $455 per week, excluding from the exemption the bottom 20% of salaried employees in the South and in the retail industry, according to a request for information (PDF) on changing the rule that Labor issued this summer. That year, the department also said that employees who earned at least $100,000 annually “needed to satisfy only a very minimal duties test for exemption.”
In 2016, the Obama administration updated the exemption regulations to reflect increases in salary levels since 2004 and set the standard salary at a level that would exclude from exemption the bottom 40% of salaried workers in the lowest-range Census region—the South—increasing the amount from $455 per week to $913, or from $23,660 per year to $47,476 per year.
A lawsuit brought by 21 states and several business groups against that update meant it couldn’t take effect, and at the end of August, a federal judge at the U.S. District Court for the Eastern District of Texas struck the rule down.
“The Department has exceeded its authority and gone too far with the Final Rule,” Judge Amos Mazzant said, according to an ABA Banking Journal article. “Nothing in [FLSA] Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether a ‘bona fide executive, administrative, or professional capacity’ employee should be exempt from overtime pay.”
Pending Mazzant’s decision, Labor published the RFI on July 26 and provided a 60-day comment period.
In its comments (PDF), ABA recommends applying the 2004 methodology and guiding the rulemaking process with three tenets: simplifying the complicated rule, adhering to the salary level test’s purpose as a gatekeeper and understanding that employees and employers must be adaptable to a dynamic workplace.
“Updating the salary level for inflation seemingly provides a simple mechanism for adjustment. However, inflation measures include components other than wages, making an ‘apples to apples’ comparison difficult if not impossible,” ABA wrote. “By accounting for the differences in salary levels across the country as well as the differences in wages across industries, ABA believes the 2004 methodology achieves the better result both for employees and employers.”
Additionally, ABA recommends a single, uniform salary for executive, administration and professional (EAP) exemptions, and letting employers include all forms of compensation when considering whether an employee has met the salary level requirement.
SHRM, which supports a return to the 2004 approach, concurs with the U.S. Chamber of Commerce, which said in comments that the former methodology would result in a minimum salary level of $612 per week, or nearly $32,000 per year, today, according to SHRM.
SHRM opposes automatic updates to the exempt salary threshold, as does the Partnership to Protect Workplace Opportunity, which said Labor would be avoiding “its obligations to engage in notice-and-comment rulemaking simply because notice-and- comment rulemaking takes time and resources,” according to SHRM.
Some attorneys general and organizations support the 2016 level for EAP workers, such as first-line supervisors at fast-food restaurants, car washes and retail stores; clerical and office workers; and medical and dental technicians. New York Attorney General Eric Schneiderman and the attorneys general from California, Delaware, Illinois, Iowa, Maryland, Massachusetts, Vermont and Washington said changing it would mean workers who should be classified as nonexempt may not be, SHRM states.
“The Center for American Progress also wrote in support of the 2016 level, calling any new rulemaking unnecessary and a threat to working Americans,” according to SHRM. And the AFL-CIO said that Labor’s original proposal to raise the exempt salary threshold to $50,440 per year “was not sufficient to restore overtime protections that had been eroded over the previous four decades.”