Employers Should Watch for Wage and Hour Changes in 2019

The DOL recently released its Fall Regulatory Agenda, signaling its intent to act on some important issues under the Fair Labor Standards Act (“FLSA”). Three items of note are on the agenda with upcoming dates: changes to the salary level for the overtime exemption; a joint employer rule; and clarification of regular rate and basic rate requirements.

FLSA Salary Test

In 2016, a Texas court struck down the Obama administration’s changes to the FLSA overtime regulations governing the standard for determining when an employee was exempt from overtime. Those regulations would have increased the salary threshold for an employee to qualify for an exemption to $47,476, which had caused much consternation among employers, especially those in low-wage areas of the country, small businesses, non-profits and educational institutions. The current salary level is $455 per week, or $23,660 per year.  

The DOL is working on new regulations, but has been moving slowly and is being very conscious of involving the public in its deliberations. It has actively sought public input on new regulations and what they should contain. In July 2017, the DOL published a Request for Information in the Federal Register, with comments closing in September 2017. This fall, the DOL held “Listening Sessions” in various cities seeking input on possible regulations.

The Fall Regulatory Agenda indicates a proposed rule will be issued in March 2019 (a delay from the January 2019 date set forth in the Spring Regulatory Agenda). Expect the slow pace to continue, with significant time after the closing of public comment before a regulation is issued. Employers should also expect significant lead time to be provided before any regulation becomes effective, in order to avoid the rush many employers experienced to change salaries in December 2016. It is unlikely that any new regulation would go into effect until 2020.

Although implementation still might be some time in the future, what might employers expect from a proposed rule? First, employers should expect some increase in the salary level. The invalidated rule would have more than doubled the current salary level, which many employers found too extreme. Indeed, the Texas court that struck down the proposed regulation agreed, finding that the salary test was so high that it effectively eliminated the duties test. But Secretary of Labor Acosta has repeatedly stated that he favors some increase in the salary level. A salary threshold in the low $30,000s would not be unexpected. Will we see an automatic adjustment tied to cost-of-living, wage growth, or some other factor? That is less clear. The Texas court had found the automatic adjustment portion of the proposed regulation to be unlawful, but that holding appeared to be predicated on the increase itself being unlawful; it therefore remains unclear whether some automatic adjustment would be permissible. It would not be surprising to see some automatic adjustment that would eliminate the need for new regulations to update the salary level in the future.

Joint Employment

During the Obama administration, the DOL expanded the definition of when two or more companies could be considered “joint employers” of the same worker and thereby liable for wage and hour compliance. The guidance caused significant concern among franchisors and companies that regularly use staffing firms about their liability under the FLSA. That guidance was withdrawn in 2017 after President Trump was elected. The DOL “will propose to clarify the contours of the joint employment relationship to assist the regulated community in complying with the [FLSA].” A Notice of Proposed Rulemaking (“NPRM”) is expected in December 2018. The NPRM will solicit public comment on the proposed rule before any final rule is issued, likely later in 2019. While little indication has been given about the direction the administration will take, it is expected that there will be a narrowing of the definition and the instances in which joint employment would be found.

Clarification and Updating of Regular Rate Regulations

The “regular rate” of pay is what employers must use to calculate overtime pay for non-exempt employees. Many employers would be surprised to find that the “regular rate” is more complex than just the hourly rate, but may include bonuses and other payments and benefits. The rules are complex, and in the view of the DOL, are outdated and do not reflect modern forms of compensation and benefits. For example, under current regulations, if an employer pays a non-discretionary bonus to non-exempt workers, that bonus must be taken into account in calculating the workers’ regular rate and the amount of the time-and-a-half overtime premium. This creates difficulties for employers when bonuses are paid other than on a weekly basis, such as monthly or quarterly production bonuses. Under current regulations, the amount of the bonus must be prorated over the prior workweeks, which could result in an increase of overtime payments due. The DOL is proposing to clarify and update what payments must be included in, or may be excluded from, the “regular rate.” A NPRM is expected in December 2018. As with the joint employer rule, the DOL has not been very vocal about the changes to expect from a new rule, but some simplification of the regulations is to be expected as well as the ability to exclude more payments from the “regular rate.”

This blog was written by Kirsten Eriksson at Miles & Stockbridge.

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