The changes, especially proposed updates on overtime thresholds, could shape policies for employee pay and classification in the coming year.
01/15/2024 1:35 P.M.
3 minute read
ACA International members will want to take note of progress on two rules from the U.S. Department of Labor (DOL).
First, according to an article from Brownstein Hyatt Farber Schreck, the DOL Wage and Hour Division released a final rule on Employee or Independent Contractor Classification under the Fair Labor Standards Act.
“The final rule preserves the use of an ‘economic realities’ test that analyzes an employee’s classification through the totality of the circumstances of the worker-employer relationship,” according to Brownstein.
It replaces a policy from the Trump administration in 2021 and is based off an administrative interpretation issued by the DOL under the Obama administration.
“Unlike the Trump-era regulation, which gave greater weight to factors such as the amount of control workers have over their duties and the opportunity for profit or loss, no single factor in the new regulation is outcome determinative,” Brownstein reports. “The revised economic realities test relies on multiple factors, which include: 1) opportunity for profit or loss, 2) investments by the worker and the potential employer, 3) the degree of permanence of the work relationship, 4) the nature and degree of control, 5) the extent to which the work performed is an integral part of the potential employer’s business, and 6) skill and initiative.”
The new rule, which the DOL says better aligns with the FLSA and “reduces the risk of employees being misclassified and provides greater consistency to businesses,” according to Brownstein, will take effect on March 11.
Proposed Overtime Rule
The DOL is considering changes to overtime salary standards under the FLSA in a proposed rule that also spans multiple presidential administrations.
The Notice of Proposed Rulemaking (NPRM) would update the regulations under the FLSA “implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees.”
It would guarantee overtime pay for most salaried employees paid less than $1,059 per week, or about $55,000 per year, according to a news release from the DOL.
Comments on the NPRM closed in November 2023 and the agency received more than 26,000 comments.
With the proposed increase in the overtime salary threshold from the current $35,568 to the $55,000 mark, approximately 3.6 million workers would be eligible for overtime pay under the proposed rule, according to the DOL.
Through the proposed rule, the DOL seeks to update and revise the regulations for determining whether certain salaried employees in executive, administrative or professional roles (EAP), also classified under the FLSA as the “white collar exemption,” would qualify for the guaranteed overtime pay, ACA International previously reported.
The DOL also proposes to increase the annual compensation requirement for “highly compensated employees” to $143,988, which is based on the annualized weekly earnings of the 85th percentile of full-time salaried workers nationwide.
There would be automatic updates to the overtime threshold every three years if the rule is approved.
ACA joined the Partnership to Protect Workplace Opportunity and more than 200 organizations representing employers from a range of industries in comments (PDF) urging the DOL to reverse course on its proposal to increase the minimum salary for employees exempt from overtime pay requirements under the FLSA, ACA previously reported.
PPWO noted in its comments that, if approved, employers would have only 60 days to implement the changes in a final rule, including determining whether to raise an employee’s salary, reclassify their employment as hourly or restructure their job to distribute work differently, which may result in employee turnover.
The DOL estimates there are 3.6 million workers who are currently exempt white-collar employees, which employers would have to review for salary and job status under the new rule.
Additional employer concerns outlined in the PPWO comments include:
- Employees will have fewer opportunities for flexible and remote work and career development.
- Employees will have fewer opportunities for part-time work.
- Most employees will not receive additional compensation, and some employees may see a reduction in pay.
- Businesses, nonprofits, schools, local governments and workers in rural and other low-cost areas will be hit the hardest.
- The department’s proposed rule is unlikely to withstand judicial scrutiny.
The DOL’s rule in 2016 was challenged in court for its high salary threshold and blocked by a federal judge, but the department moved forward with an update that was finalized in 2019, prompting accounts receivable management companies to review and update overtime and employee exemption policies, ACA previously reported.
On an episode of the CUbroadcast, Brownstein Hyatt Farber Schreck Shareholder Leah Dempsey breaks down whose pay would change under the proposed rule and implications for employees and employers on job status, salary and costs.
Dempsey covers the background of past overtime rule proposals and said a final rule could be released next spring or summer, which could present challenges to the DOL if control in the White House flips after this year’s presidential election.
The DOL’s rule in 2016 was challenged in court for its high salary threshold and blocked by a federal judge, but the department moved forward with an update that was finalized in 2019, prompting accounts receivable management companies to review and update overtime and employee exemption policies, ACA previously reported.
While the rule is still in the proposal stage, ACA members should consider reviewing their salary and overtime policies now with what is proposed by the DOL.
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