Brace for new OT rules now, says former DOL admin

The FLSA’s new “white-collar” exemptions that are expected to drastically expand who’s entitled to overtime pay should be be released very soon — and a former DOL administrator has offered a sneak peak at what they’ll look like.

Tammy McCutchen was instrumental in drafting the most recent changes to the OT regs (enacted in 2004), she also participated in a number of recent “listening sessions: with DOL Secretary Thomas Perez on the current rulemaking.

And recently, she shared with SHRM Online some advice for employers regarding the upcoming FLSA changes: Start looking at employer classifications as soon as the proposed rule is released.

Why? The proposed-to-final-rule process isn’t likely to include many changes.

That means firms may not have enough time after a final rule is published to make the changes necessary to avoid getting into legal trouble, according to McCutchen.

For employers to ensure they’re in compliance, an internal audit of FLSA classifications may be necessary. And that’s a costly undertaking that needs to be planned well in advance.
Likely and unlikely changes

While employers will have to wait until the proposed rule is published to know exactly what the specific changes will be, here’s what some experts are saying.

Employment attorney and former acting WHD administrator Alfred Robinson, Jr. told SHRM Online a paper funded by the DOL recommended increasing the white-collar exemption’s salary level to $970 per week or $50,440 per year.

In addition, it’s expected the agency will consider adopting California’s requirement that an employee primarily perform exempt duties for at least 50% of his or her work time to be considered OT-exempt.

One thing industry experts believe the rule won’t include: A safe harbor for firms that want to fix violations that were made in a good-faith effort to comply. That means firms have to get classifications right the first time.

An insider reveals Obama’s plan to increase overtime eligibility

The Obama administration is dead set on increasing overtime availability for workers.

In fact, when President Obama announced his intention to amend the current FLSA overtime regs, even the DOL was surprised by the move.

Now employers are wondering exactly when those changes will take place and what the impact will be.
An expert’s insight

If anybody’s likely to have that info, it’s Tammy McCutchen, a former administrator of the DOL’s Wage and Hour Division (WHD).

Not only was McCutchen instrumental in drafting the most recent changes to the OT regs (enacted in 2004), she also participated in a number of recent “listening sessions” with DOL Secretary Thomas Perez on the current rulemaking process.

These sessions involve the agency soliciting the feedback and questions of employers and employment groups.

At the 2014 SHRM Conference & Exposition in Orlando, McCutchen talked about when employers can expect the final rules (not just the proposed version) as well as the methods the DOL is currently considering to overhaul the current regs.

Here are the highlights.
Ready by 2015?

The DOL recently said it expects to have proposed rules on the “white collar” OT exemption by November of this year. But when can firms expect the final rules to actually take effect?

McCutchen said she expects the DOL to move faster than usual with this rule change. In her estimation, the final rules are likely to be published by September 2015 – and likely to go into effect by January 1, 2016.
3 critical DOL questions

To come up with the most efficient way to change the regs, Secretary Perez is asking three main questions:

1. What should the salary level be moving forward? One thing is certain about the new OT regs: The salary level – currently $455 per week or $23,660/year – will be increased.
The agency is looking at the most effective ways to raise this level and according to McCutchen, these are the front-runners:
Raise the level – after adjusting for inflation – to 1975’s level. That would bump the minimum salary level all the way up to $50,000 per year and force many firms to change the status of many employees they had previously classified as exempt.
Adopt the California salary level. This method relies on auto-corrections for inflation. Based on today’s standards, that level would be $570 per week.
2. What changes should be made to the duties test? The DOL also plans to increase the availability of OT by amending the current duties test.
The agency is likely to narrow the duties test – rather than make wholesale changes – and simplify language in the current regs. It’s also likely to specifically spell out more jobs which are definitely OT exempt.
Also, the agency will probably revise the “concurrent duties” regs under the executive exemption test; this gives managers an exemption even if they’re doing the same work as direct reports.
The DOL is seriously considering adopting California’s duties test instead, which requires an exempt manager to spend more than 50% of his or her time supervising employees.
Bottom line: Prepare for more borderline workers to be eligible for OT as soon as the new regs pass.
3. What can the DOL do to streamline the process? According to McCutchen, the DOL realizes this is a massive undertaking. As a result, it’s looking to employers for suggestions and insight to make the new rules as clear and effective as possible.