Restaurant and retail industries are seen as key targets of a likely proposal to amend the test for exempt status according to time spent on executive duties
Given all the anticipatory publicity about expanding exempt workers’ access to overtime pay, President Obama’s announcement on March 13 that he was directing his Secretary of Labor to propose revisions ‘to update existing protections consistent with the intent’ of the Fair Labor Standards Act was relatively lacking in substance. To be sure what’s at stake, employers will have to wait until the Department of Labor formulates a proposed rule.
In recommending modifications, the President has also asked the Secretary of Labor to ‘address the changing nature of the workplace, and simplify the regulations’ concerning overtime pay. Based on the President’s comments when announcing his memo directing the Secretary of Labor to act, one apparent goal is effectively raising the minimum wage of workers who are currently exempt.
Tammy McCutchen, who oversaw the last update to overtime regulations as administrator of the DOL’s Wage & Hour Division in George W. Bush’s administration, says that despite the lack of specifics from the President, employers can ‘look to the comments filed by the AFL-CIO in 2003 as a guide of what to expect.’ McCutchen is now a shareholder with employment law firm Littler Mendelson.
The two main changes reportedly on the table are to boost the weekly minimum salary to classify an employee as exempt, and to adjust the job test for exempt status. The administration must be careful in setting a new minimum salary nationwide, says McCutchen.
‘When settling on the $455 minimum salary level in 2004, DOL looked closely at current salary levels in the restaurant and retail industry in the rural South and Midwest, as shown in BLS data, to ensure the minimum salary level would not make it impossible for such business to operate,’ she says.
While all types of businesses are affected by raising the minimum salary, the restaurant and retail industries would be the primary targets of any proposal to amend the test for exempt status to require a minimum percentage of employee time be spent on executive duties, McCutchen says.
Kevin Hyde, national practice group leader of labor and employment for Foley and Lardner, agrees. ‘I would be particularly worried if I were an employer in the restaurant or retail industry and I had employees who were classified as exempt but who also did the work of stocking shelves, cashiering, any manual labor, working on the sales floor,’ he says.
McCutcheon expects the mortgage and technology industries to also be targeted through other changes. She believes the proposed rule will likely include reclassification of mortgage loan officers because the administration recently lost a labor case involving its informal effort to re-classify them. Establishing a new rule will likely take 12 to 18 months, including at least one 90-day period for public comment after the DOL proposes a rule. Both Hyde and McCutchen expect a lot of comments. DOL received 75,000 in 2004, McCutchen says.
Although there’s little that employers can do to prepare until a rule is proposed, major trade groups will get busy trying to shape the content of what is eventually proposed, says Hyde.
Hyde urges employers to act swiftly once the proposed rule is published. He recommends they review which employees are currently exempt and determine whether that classification would have to change. Once they identify the impacts, employers should cost out the changes and apprise trade groups such as the Chamber of Commerce and the Federation of Independent Business of how the proposed rule would affect their business. Those trade groups can use the impact information to improve their formal comments to the proposal rule..
McCutchen warns that businesses may find they need to raise exempt employees’ salaries rather than make them non-exempt and pay overtime, even if the latter would prove cheaper. ‘Many employees will view reclassification as a demotion,’ won’t want to punch a time clock, and will resist changes in benefits such as less vacation pay and ineligibility for bonuses and profit sharing. ‘Especially because of the benefits, to recruit and retain the best employees, an employer may want to maintain the exemption,’ she says.
