Department of Labor Proposes New Overtime Regulations



Similar documents
New York State Labor Law Amendments Affecting Proof in Pay Discrimination Cases and Employer Policies Concerning Wage Disclosure

New York City Council Passes Bill Banning Use of Credit Checks in Employment Decisions

Supreme Court Clarifies Statute of Limitations Applicable to False Claims Act Whistleblower Suits Against Government Contractors

FBAR Reporting Requirements for Foreign Financial Accounts

Supreme Court Decision Affirming Judicial Right to Review EEOC Actions

New York Employment Law Update

Dodd-Frank Whistleblower Provision

Deductibility of Fiduciary Expenses

Equal Employment Opportunity Commission v. Abercrombie & Fitch Stores, Inc.: Religious Accommodation in the Workplace

Whistleblower Provisions

IRS Addresses Consequences of Purchasing and Selling Life Insurance Contracts

Sarbanes-Oxley Whistleblower Provision

Perez v. Mortgage Bankers Association

Tax Court Addresses Implied Waiver of the Attorney-Client Privilege

IRS Issues Audit Directive on Worthless Debt Deductions for Banks and Bank Affiliates

New York Court of Appeals Announces New Rules Governing Practice in New York by Attorneys Not Admitted in the State

IRS Offshore Voluntary Disclosure Program

Partnership Debt-for-Equity Exchanges

Partnership Tax Audits

German Merger Control

Changes to New York Power of Attorney Law

Hong Kong Enacts a Statutory Disclosure Regime

Section 4371 Excise Tax on Insurance and Reinsurance Contracts

New York State Tax Developments

Internal Revenue Service Issues Regulations Affecting REIT Conversions and Spinoffs

Criminal Defense and Investigations

NYSE Amends Rule on Material News Notification and Trading Halts

CFTC Chairman Seeks Additional Authority for CFTC

Broker-Dealer Audit and Reporting Updates

FDIC Temporary Liquidity Guarantee Program

IRS Issues Final and New Proposed Regulations Implementing the 3.8% Tax on Investment Income

Due Diligence in Regulation D Offerings

Registered Adviser Custody Rules

Changes to New York Power of Attorney Law

The FTT will be due irrespective of whether the acquisition is carried out by a company or an individual.

Deposit Insurance Assessment System

THE DOL S PROPOSED SALARY REGULATIONS

House Financial Services Draft OTC Derivatives Legislative Proposal

Reporting Requirements for Foreign Financial Accounts

EU State Aid and Tax Law

Bank Levies in the UK, France and Germany

DOL Proposed Changes to FLSA Overtime Rules

Court Addresses (Again!) Employee Stock Option Expenses for Transfer Pricing Purposes

Current Market Conditions Create Opportunities for Estate Planning Strategies

French 50% Withholding Tax on Interest Paid in Tax Havens

Corporate Governance of Delaware Corporations

Kyle B. Russell Overland Park, KS

Explaining Obama Administration s Overtime Expansion Proposal for Department of Labor s Overtime Exemptions

HIGHLIGHTS FROM THE DEPARTMENT OF LABOR ON NEW OVERTIME RULES

Fair Labor Standard Act (FLSA) Proposed Changes Presented by: Kevin M. McCarthy

Private Securities Fraud Claims Under Section 10(b) Based on False or Misleading Statements

Court Addresses Employee Stock Option Expenses for Transfer Pricing Purposes

The International Public Management Association for Human Resources (IPMA HR) is a nonprofit

Department of Labor s New Overtime Exemptions Rules

INVESTMENT FUNDS. SEC Proposes First Dodd-Frank Investment Advisers Act Rule to Address Family Offices. What Is a Family Office?

Recent Developments Regarding Entity Classification for UK Tax Purposes

California Supreme Court Issues Ruling in Brinker Clarifying Employers Duty to Provide Meal and Rest Breaks to Hourly Employees

FLSA Proposed Exemption Changes Are Here: Learn How To Impact the Final Rule and How the Changes Impact You

The Court held that the doctrine applies both in plenary proceedings in the Delaware state courts and to inspections under Section 220.

CFTC Proposes Rulemaking Regarding Automated Trading

Sweeping Changes Made to Labor and Employment Whistleblower Protections

Chinese Affiliates of Big Four Accounting Firms Ordered Barred from Practicing Before the SEC for Six Months; Suspension Stayed Pending Appeal

Basel Intraday Liquidity Framework

A n E x c E p t i o n A L o p p o r t u n i t y

Plaintiff s Lawyers Bullish On Merrill Lynch: Brokerage Firm Agrees To Pay $37 Million To Settle Overtime Claims By Stockbroker

Treasury and IRS Release Long-Awaited Guidance on Deferred Compensation Rules under Code Section 409A Certain Actions Necessary Before Year-End

Overview of Changes to Regulations. Among other changes, the new regulations:

Highly compensated employees.

EXEMPT VS. NON-EXEMPT Identifying Employee Classification

Registration Process for Security-Based Swap Entities

SEC Issues Liquidity Risk Management and Swing Pricing Proposal for Open-End Investment Funds

SEC s Proposed Rules for Implementing Dodd-Frank Whistleblower Provisions: Important Implications for Employers. November 12, 2010

They re Here: DOL s Revised Exemption Regulations

Bank Mergers & Acquisitions

Small Entity Compliance Guide

New York State and City Tax Law Changes

California State University

Payday Loans Under Attack: The CFPB's New Rule Could Dramatically Affect High-Cost, Short-Term Lending

It is the responsibility of the Agency Head, or their designee, to determine whether any exemption is applicable to particular employees.

SEC Announces Final Rules Implementing The Dodd- Frank Whistleblower Program

FREQUENTLY ASKED QUESTIONS FLSA CHANGES FOR 2016

Loan Officer Compensation Briefing

Communications Broadcast Advisory

WHO S EXEMPT? THE NEW FAIR LABOR STANDARDS ACT REGULATIONS By Brandon W. Zuk, Fraser Trebilcock Davis & Dunlap, P.C.

Executive Exemption Worksheet

Scope of Criminal Insider Trading Liability for Remote Tippees

FLSA White Collar Exemptions Summary of the Proposed Regulations

FLSA : is not an acronym for

The Department of Labor's 6 Most Targeted Compliance Areas for Healthcare Employers

FINANCIAL INSTITUTIONS REGULATORY UPDATE

Cyber Risks in the Boardroom

The Affordable Care Act s Employer Mandate: Guidance for Educational Organizations

Draft FAIR LABOR STANDARDS ACT Exempt Hours Administration

BRIGHAM AND WOMEN S HOSPITAL

FSOC Proposes Rules for Board of Governors of the Federal Reserve s Supervision of Nonbank Financial Companies. October 20, 2011

SOFTWARE DEVELOPMENT IN RUSSIA: KEY LEGAL ISSUES

FLSA Exemption Changes: The Proposed Rules Are Coming. Squire Patton Boggs Webinar Series

How to Avoid Emerging Wage & Hour Risks: Exempt or Non- Exempt, Contractor Liability & Minimum Wage Hikes

FLSA Compliance: Exempt vs. Non-Exempt Classification Audit **FEDERAL**

Exempt or Not Exempt? The Fair Labor Standards Act (FLSA)

Transcription:

Department of Labor Proposes New Overtime Regulations DOL Proposes Substantially Raising Salary Thresholds Used in Determining Who Is Exempt from Overtime Pay and Requests Comments on Potential Changes to the Current Regulations Defining the Duties Required to Qualify for Exemption SUMMARY Yesterday, the Department of Labor proposed long-awaited revisions to its overtime regulations. The new proposed rules were issued in response to President Obama s directive to the Secretary of Labor in March 2014 to revise existing overtime regulations, with the express purpose of increasing the number of workers who qualify for overtime payments. The proposed rules seek to increase the number of employees who are eligible for overtime by significantly increasing the salary thresholds for exemption. Currently, the rules exempt certain categories of employees who earn more than $455 per week ($23,660 per year) and perform certain primary duties. The proposed rules increase the basic salary threshold to the 40th percentile of earnings for full-time salaried workers ($951 per week, or $49,452 per year, as of the first quarter of 2015). In a similar vein, the proposed rules increase the highly compensated exemption threshold (above which the standards for determining exemption are more easily achieved) to the 90th percentile of earnings for full-time salaried workers ($122,148 annually). Finally, the proposed rules seek to index the compensation thresholds for inflation, either by maintaining the levels at a fixed percentile of earnings or by updating the level based on changes in the Consumer Price Index. Although the proposed rules do not contain changes to the detailed duties tests that are applied to employees whose compensation is above the threshold levels, the notice requests comment on whether modifications to the duties tests New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com

should be adopted and the Department of Labor seems to be claiming the right to adopt changes to the tests in its final rule, without having sought or received comments on the specifics of what they adopt. The net effect of the proposed rules is to expand considerably the number of employees who are subject to the overtime requirements of the Fair Labor Standards Act. The Department of Labor estimates that, if the proposed rules are adopted, more than 4.6 million additional workers would become entitled to overtime compensation. The Department of Labor is seeking public comment on its proposals. The due date for comments will be set upon publication of the notice in the Federal Register, which is imminent. The comment period will likely be 60 days, and thus the comments could well be due soon after September 1. Details on the deadline and the methods for filing will be available at the Department s web site, http://www.dol.gov/whd/overtime/nprm2015. Comments can be filed at www.regulations.gov. After the close of the comment period, the Department of Labor will review and respond to comments before publishing the final regulations. Thereafter, Congress may choose to disapprove the rules, subject to the President s veto power. All told, any rules are unlikely to be final until 2016. BACKGROUND The federal overtime provisions are contained in the Fair Labor Standards Act. Employees covered by the Act must receive time-and-a-half pay for all hours worked in excess of 40 in any work week. The Act exempts from overtime eligibility five categories of employees: executive, administrative, professional, computer, and outside sales employees, and also has some other occupationally specific exemptions. To be exempt from overtime requirements, an employee must be paid above a salary threshold and must perform certain of his or her primary duties consistent with one of the exemption categories. Employers must classify each of their employees as exempt or non-exempt and treat them accordingly. THE PROPOSED CHANGES A. INCREASE IN SALARY-BASIS TEST FOR EXECUTIVE, ADMINISTRATIVE, AND PROFESSIONAL EMPLOYEES Under current law, to be exempt as an executive, administrative, or professional employee, an employee must be paid on a salary basis and earn more than $455 per week ($23,660 per year). An employee is considered to be paid on a salary basis if the employee regularly receives a predetermined amount constituting all or part of the employee s compensation, and the amount is not subject to reduction because of variations in the quality or quantity of the work performed. All employees earning less than the threshold amount must receive overtime pay regardless of their duties. The proposed rules retain the salary-basis test but increase the salary threshold to the 40th percentile of earnings for full-time salaried workers, or $951 per week ($49,452 per year) as of the first quarter of 2015. Moreover, the proposed rules seek to index the salary level for inflation annually using one of two -2-

methods, and the Department of Labor has requested comments on which methodology it should use. One proposed method is to update the salary level each year to reflect the 40th percentile of earnings for full-time salaried workers. Alternatively, the salary level could be adjusted based on the Consumer Price Index for all urban consumers. B. HIGHLY COMPENSATED EMPLOYEES The overtime regulations contain a category of highly compensated employees as to which the overtime exemption standards are more easily met. An employee is exempt from overtime requirements as highly compensated if the employee earns total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis), the employee s primary duty includes performing office or non-manual work, and the employee regularly meets any one of the standards set forth in the regulations for an executive, administrative, or professional employee. Thus, for example, an employee may qualify as an exempt highly compensated executive if the employee regularly performs one but not all of the exempt duties of an executive. The proposed rules increase the threshold compensation for highly compensated employees to the 90th percentile of earnings for full-time salaried employees ($122,148 annually), and also seek to update the threshold by either annually adjusting the salary level to remain at the 90th percentile or indexing it to the Consumer Price Index for all urban consumers. The Department of Labor estimates that 36,000 workers would be newly eligible for overtime as a result of this change. C. REQUEST FOR COMMENTS AS TO DUTIES TESTS AND POTENTIAL ADOPTION OF NEW RULE WITHOUT AFFORDING OPPORTUNITY FOR SPECIFIC COMMENT ON IT The executive, administrative, and professional exemptions currently provide that an employee will be exempt from overtime so long as his or her primary duties fall within the exemption. Thus, for example, a bank branch manager may still be exempt under the administrative exemption even if she does some non-managerial work, so long as her primary duty is managerial. In its notice, the Department of Labor stated that it recognized the view of employers that in workplace settings it is necessary for exempt employees from time to time to pitch in and do non-exempt work. Nevertheless, the Department also recognized the position of those seeking expansion of overtime eligibility that the primary duties tests could be overinclusive. Although the Department did not propose changes to the duties tests in its notice, it requested comments on whether it should do so. It listed a number of specific issues as to which it solicited comments, including: What, if any, changes should be made to the duties tests? Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be? -3-

Should the Department look to the State of California s law (requiring that 50 percent of an employee s time be spent exclusively on work that is the employee s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee s time worked a better indicator of the realities of the workplace today? Does the single-standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider its decision to eliminate the long/short duties tests structure (a structure that it used prior to 2004, whereby a more stringent long test applied to employees paid at a lower salary level, and a less stringent short test applied to employees paid at a higher salary level)? Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lowerlevel executive employees performing nonexempt work? Should the Department add to the regulations examples of additional occupations to provide guidance in administering the executive, administrative, and professional exemptions? The Department appears to be reserving the right to adopt final rule changes in the duties tests for those items as to which it specifically solicited comments, such as adopting California s 50 percent rule for all duties tests or changing the concurrent duties rule for executive employees. In an email released June 30, the Department stated that, while no specific changes are proposed for the duties tests, the NPRM [Notice of Proposed Rule-Making] contains a detailed discussion of concerns with the current duties tests and seeks comments on specific questions regarding possible changes. The Administrative Procedure Act does not require agencies to include proposed regulatory text and permits a discussion of issues instead. If the Department were to adopt final rules that it never published for comment, it would undoubtedly be criticized for having engaged in ambush tactics and court challenges likely would follow. Although the Department is taking an aggressive position about its ability to adopt final rules without previewing their text for comment, even it appears to acknowledge that for matters beyond those specifically discussed in its notice, it would have to provide new notice and opportunity for comment. IMPLICATIONS If the proposed regulations are adopted in their present form, employers as to whom the change in the salary threshold could affect the number of overtime eligible employees have several options. Employers could, for example, raise salaries of employees who meet the other exemption tests to the new threshold. Alternatively, employers could hire more employees and distribute hours among them to minimize the number of employees who work more than 40 hours a week. Employers also could consider studying the number of hours worked by employees who are currently exempt but are paid below the new threshold and adjust the basic hourly pay rate such that the basic pay plus overtime pay for hours worked above 40 each week would be roughly equivalent to the former salary. -4-

Employers should particularly consider commenting on the questions concerning the duties tests raised by the Department, given the Department s apparent position that it can adopt final rules on the tests without further comment. Employers also should consider communicating with industry groups to prepare collective comments. The comment period gives employers a chance to explain to the Department of Labor the challenges they face and the concerns specific to their businesses. * * * Copyright Sullivan & Cromwell LLP 2015-5-

ABOUT SULLIVAN & CROMWELL LLP Sullivan & Cromwell LLP is a global law firm that advises on major domestic and cross-border M&A, finance, corporate and real estate transactions, significant litigation and corporate investigations, and complex restructuring, regulatory, tax and estate planning matters. Founded in 1879, Sullivan & Cromwell LLP has more than 800 lawyers on four continents, with four offices in the United States, including its headquarters in New York, three offices in Europe, two in Australia and three in Asia. CONTACTING SULLIVAN & CROMWELL LLP This publication is provided by Sullivan & Cromwell LLP as a service to clients and colleagues. The information contained in this publication should not be construed as legal advice. Questions regarding the matters discussed in this publication may be directed to any of our lawyers listed below, or to any other Sullivan & Cromwell LLP lawyer with whom you have consulted in the past on similar matters. If you have not received this publication directly from us, you may obtain a copy of any past or future related publications from Stefanie S. Trilling (+1-212-558-4752; trillings@sullcrom.com) in our New York office. CONTACTS New York Theodore O. Rogers, Jr. +1-212-558-3467 rogersto@sullcrom.com Robin D. Fessel +1-212-558-3832 fesselr@sullcrom.com Tracy Richelle High +1-212-558-4728 hight@sullcrom.com Washington, D.C. Jeffrey B. Wall +1-202-956-7660 wallj@sullcrom.com -6- SC1:3899386v3