The Fair Labor Standards Act (FLSA) of 1938 and the Family and Medical Leave Act (FMLA) of 1993 are the two primary 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. On May 18, 2016, DOL issued final overtime regulations that increase the salary threshold to $913 per week, or $47,476 annually, increase the highly compensated employee level and impose automatic updates to the salary threshold every three years.
In late November, a federal court issued a preliminary injunction preventing the rule from becoming effective on December 1, 2016, as originally scheduled, until the court issues a final determination. In issuing the preliminary injunction, the court determined that those challenging the rule—21 states and more than 50 employer groups—stood a significant chance of success and faced a substantial threat of irreparable harm if the rule was not halted. As a result, employers are holding off on implementing changes, and some that complied with the rule ahead of schedule are rolling back changes until the issue is resolved. Although DOL has since appealed the injunction, most observers believe it is more likely that the fate of any overtime salary threshold increase will now be in the hands of the Trump Administration.
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 November 22, 2016, U.S. District Court Judge Mazzant issued a temporary nationwide injunction of the Obama Administration's overtime rule changes in response to a legal challenge brought by 21 states and a coalition of employer groups. The practical effect of this injunction is to preserve the rules that employers currently use to determine which employees are exempt from overtime under FLSA and which are not. Given the court's strongly-worded opinion, most observers believe that the court is likely to make its injunction permanent, leaving the decision of whether to pursue changes to overtime rules to the Trump Administration.
The enjoined 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) supported a reasonable increase in the salary threshold but voiced its concerns over these dramatic regulatory changes through comments signed by 50 SHRM state councils, 307 SHRM chapters and the Council for Global Immigration, which were submitted to DOL by the agency's deadline of September 4, 2015. SHRM also chairs the Partnership to Protect Workplace Opportunity, the lead voice of the employer community responding to the regulations.
In its opinion, the court found that DOL "exceeds its delegated authority and ignores Congress's intent by raising the minimum salary level such that it supplants the duties test." SHRM welcomed the court's injunction of the rule due to concern that the significant increase to the salary threshold was too high and the increase would be enacted too quickly. SHRM was also concerned that the automatic increases would prevent the public from having input on an appropriate salary threshold in the future. The recent court decision now affords the Trump administration the opportunity to revisit the overtime regulations.
Despite DOL's appeal, the court's strongly-worded opinion leads most legal scholars to believe the rule will be permanently enjoined. If so, any regulatory changes to the overtime rule, including the salary threshold to qualify for exemption to the overtime requirements, will fall to the Trump Administration's DOL.
Workplace flexibility is a strategic business practice that determines when and how work is to be done. It helps organizations create a modern work environment that is responsive to demographic, economic and technological changes. According to the 2014 National Study of Employers (cosponsored by SHRM), 99 percent of employers with at least 50 employees offer some form of paid leave, with 58 percent of employers offering maternity leave and 14 percent offering spouse or partner leave.
Outlook: Several bills will likely be reintroduced in the 115th Congress that would instruct employers on 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. The Working Families Flexibility Act would allow for compensatory time for nonexempt employees in the private sector. Finally, 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.
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