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The Fair Labor Standards Act (FLSA) of 1938 and the Family and Medical Leave Act (FMLA) of 1993 are two key federal statutes shaping workplace policies in this country. The U.S. Department of Labor's (DOL) Wage and Hour Office enforces both FLSA and FMLA. Among other things, FLSA establishes the minimum wage, overtime pay and recordkeeping requirements for employees in the private sector and in federal, state and local governments. Under FLSA, employees are to be paid at a rate of at least one and one-half times their regular rate for any hours worked in excess of 40 in one week, unless they have been classified as exempt under certain specific statutory categories or meet other requirements outlined in the regulations.
Under Section 541 of FLSA regulations, an employee may qualify as exempt from overtime requirements if he or she satisfies a "primary duties test" (performs specific job responsibilities under the executive, administrative, professional, computer and outside sales regulations), is paid on a salary basis (that is, salary does not fluctuate based on the hours that the individual works) and is paid above a salary threshold set by regulation. Under the current regulations, employees must be paid more than $455 per week ($23,660 per year) to satisfy the salary threshold for exemption. This salary threshold was last updated in 2004, although DOL attempted to update it through a rule published on May 23, 2016. The 2016 rule would have increased the salary threshold to $913 per week--or $47,476 annually--increased the highly compensated employee salary level and imposed automatic updates to these salary thresholds every three years.
The 2016 rule, however, was invalidated as a result of a legal challenge brought by a coalition of states and business groups. In that case, the court ruled that, by setting the salary level so high in the Final Rule, DOL exceeded its authority (State of Nevada, et al. v. United States Department of Labor, et al., No. 4:16-CV-00731). DOL has rebooted efforts to update the Section 541 FLSA regulations by publishing a Request for Information (RFI) in July 2017, to gather input from the public on what an appropriate salary threshold should be and whether other changes to the rules governing overtime exemption are warranted. DOL has signaled its intent to revise the salary threshold once it has reviewed public input provided in response to the RFI.
In addition to FLSA, FMLA and the Federal Employees Flexible and Compressed Work Schedules Act of 1985 are federal statutes that generally shape workplace flexibility policies. Certain states, including Arizona, California, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, Vermont, and Washington, have enacted statewide paid leave insurance programs and/or mandated paid leave statutes.
On August 31, 2017, the US District Court for the Eastern District of Texas granted summary judgement in favor of a coalition of states and business groups that challenged the Department of Labor's (DOL) final overtime rule published on May 23, 2016. The court ruled that by setting the salary level so high in the Final Rule, DOL exceeded its authority and that the Final Rule is, therefore, invalid. (State of Nevada, et al. v. United States Department of Labor, et al., No. 4:16-CV-00731).
Before the court issued its decision, DOL published a Request for Information (RFI) as the first step in creating a new overtime rule.
The invalidated rule was initially published in final form on May 18, 2016, and included the following key provisions:
Updating the Salary Threshold. DOL's final rule increases the salary threshold to $913 per week or $47,476 per year. While this level is slightly lower than the threshold in the proposed rule, it still encompasses many employees that are currently classified as exempt.
Highly Compensated Employees (HCE). The rule increases the total annual compensation level for most white-collar workers to be ineligible for overtime pay to the 90th percentile of full-time salaried workers nationally, or $134,004 a year.
Automatic Updates. The rule includes automatic salary threshold increases every three years to maintain the salary threshold level at the 40th percentile in lowest-wage census regions.
Duties Test. DOL didn't include any changes to the duties test in the final rule.
Effective Date. The rule goes into effect on December 1, 2016. In addition, DOL will increase the salary threshold automatically every three years. Based on current projections, the salary threshold is expected to rise to more than $51,000 per year, with its first update on January 1, 2020.
Outlook: The Society for Human Resource Management (SHRM) supports a reasonable increase in the salary threshold but voiced its concerns over the dramatic regulatory changes contained in the 2016 rule. The Partnership to Protect Workplace Opportunity, chaired by SHRM, is the lead voice of the employer community on the overtime regulations and echoed SHRM's concerns in its own letter to DOL. DOL is currently reviewing more than 200,000 comments in response to the RFI. The most recent regulatory agenda indicates that DOL will publish a new proposed rule around October 2018.
Workplace flexibility—or Workflex—is a hallmark of the 21st Century Workplace. It is about rethinking how, when and where people do their best work. It reflects a workplace shaped by shifting demographics, emerging technologies and other social trends. This new workplace cannot thrive with the same old, one-size-fits-all approach.
To address this dynamic, Representative Mimi Walters (R-CA) introduced the SHRM-developed H.R. 4219, Workflex in the 21st Century Act. The bill creates a 21st Century Workflex policy that works for employers and employees alike, helping them meet work-life and organizational needs.
At its core, a 21st Century Workflex policy must facilitate the expansion of paid leave and Workflex options regarding when, where and how work is done. And it must account for different work environments and be accessible by employers of all sizes and in all industries. It must avoid old ways of thinking that hold the workplace back. The Workflex in the 21st Century Act provides more time off for employees, more predictability for employers and more options for everyone.
New Approach: The proposal is a new approach to expanding paid leave and workplace flexibility options for employees reflecting today's most innovative workplace strategies.
Voluntary, Opt-in System: The proposal would allow employers to voluntarily offer employees a qualified flexible work arrangement plan under the Employee Retirement Income Security Act (ERISA) that includes a federal standard of paid time off and options for flexible work arrangements, such as telecommuting or compressed work schedules. This ERISA-covered plan would preempt state and local paid leave and Workflex laws.
Fiscally Responsible: The voluntary approach would counter expensive, one-size-fits-all mandates and expand coverage—without passing costs on taxpayers or employees.
Outlook: President Donald Trump called for paid family leave in his 2018 State of the Union address but has not released any details for the proposal. Several bills have been reintroduced in the 115th Congress that would instruct employers on paid leave and workplace flexibility. The Healthy Families Act would require nearly all employers to provide employees with up to 56 hours of paid sick time in a calendar year. The Schedules that Work Act would establish a national standard for employee scheduling and would guarantee an employee the right to request a flexible work arrangement. Finally, Senator Kirsten Gillibrand (D-NY) and Representative Rosa DeLauro (D-CT) introduced the Family and Medical Insurance Leave (FAMILY) Act that would provide partial wage replacement funded through a payroll tax for eligible leave under FMLA. The prospects appear to be low for any of these bills advancing in the 115th Congress given they have been introduced by the minority party.
The Working Families Flexibility Act was approved by the U.S. House of Representatives on May 2, 2017 and is pending action in the U.S. Senate. If enacted, the legislation would allow for compensatory time for nonexempt employees in the private sector.
The Workflex in the 21st Century Act was introduced on November 2, 2017 and may be considered by the full U.S. House of Representative before the end of the 115th Congress.
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