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Labor Department Listens to Public Input on Overtime Rule

Yesterday, I attended the Department of Labor’s final overtime listening session. It was an opportunity for the DOL to hear from the public on how best to craft a rule on who is eligible or exempt from overtime requirements. The recently released Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions announced that a proposed overtime rule would be published in March of 2019.

A few themes emerged from the comments made at the listening sessions.

One, the Obama administration’s overtime rule, which was ruled invalid by a federal court in Texas, imposed undue hardship on the regulated community, especially on small businesses and low-wage industries like restaurant and lodging.

Under the Obama rule, the salary threshold, which determines who is eligible for overtime pay, was raised by over 100 percent from $23,660 to $47,892. As the Texas court ruled, such a raise in the salary threshold is contrary to congressional intent and improperly made it the predominant factor in determining overtime eligibility. Historically, the salary threshold has been used to screen out obviously non-exempt employees, not as a means to redistribute wealth or raise wages.

To lessen the burden on these employers, attendees at the event urged setting a reasonable salary threshold. Many urged the DOL to use the agency’s 2004 methodology to set the new salary threshold that would set the salary level in the low- to mid-$30,000 range.

A failure to set a reasonable salary threshold would harm employee earning potential. A survey of its membership conducted by the National Restaurant Association found:

35 percent of those converting employees to hourly further diminished compensation by limiting work hours to 40 or less a week, while 13 percent of respondents reduced bonuses and commissions. Similarly, approximately three quarters of respondents demoted some workers from salary to hourly, 20 percent did so in a way that reduced the effective hourly rate so that the total pay remained the same, resulting in zero net gain for employees.

Two, the DOL should not include an automatic adjustment mechanism in the new overtime rule. The Obama rule included a provision that would have tied the salary threshold to the 40th percentile of salaried employees in the southeast region. This kind of provision is troubling for several reasons.

Automatically increasing the salary threshold subverts the regulatory process and Administrative Procedure Act protections like notice and comment periods. If included, the salary threshold would continue to rise without allowing for the regulated community the opportunity to provide input on how the increase would impact operations. An automatic adjustment mechanism also undermines the intent of Congress. The Fair Labor Standards Act provides the Secretary of Labor broad authority to make changes to overtime requirements, but demands that is done “from time to time by regulations,” not simply put changes to the salary threshold on auto-pilot.

Three, attendees urged the DOL to only set a national salary threshold and not multiple salary thresholds based on regional differences. As I explained in comments to the DOL’s Request for Information:

A salary threshold should be set low enough so there is no need to create differing regional thresholds that take into account varying cost of living and wage disparities across the country, as has been the case in the past. A low national salary threshold is preferable because it is only meant to screen out obviously nonexempt employees, which as a test it does well.

Keeping the national salary threshold at a low level works for high and low wage regions. For example, setting a salary threshold at a level that screens out obviously nonexempt employee in the rural South would do the same in New York City. The opposite is not true; a salary threshold set for New York City would inappropriately screen out employees that perform [executive, administrative, or professional] duties in the rural South.

There are other reasons for setting a national salary level instead of differing regional levels. Former acting Wage and Hour Administrator Alexander Passantino says multiple standard salary levels are “a great idea in principle—somewhat difficult in application.” To explain, he poses a hypothetical situation. “Imagine a company incorporated in Delaware with headquarters in New York, a regional office in Denver, a field supervisor working out of his home in Santa Fe, who services a district covering El Paso, Texas, to Phoenix,” he says. “Then imagine he spends half his time in the Denver office and half his time working out of his home.” Setting multiple salary thresholds based on regional differences would create more challenges for the DOL than the setting a single salary level.