WASHINGTON – Yesterday the U.S. Department of Labor issued its final rule on overtime regulations, striking a chorus of discontent among retail, restaurant and other related industries that rely on a workforce of both salaried and hourly employees.
Since this issue has been percolating for more than two years, here’s a bit of background: Last updated in 2004, the full-time salary threshold was $455 per week, or $23,660 per year. In 2014, President Obama directed the Department of Labor (DOL) to update overtime regulations under the Fair Labor Standards Act (FLSA), and in July 2015, the DOL released its proposed overtime updates. In general, the FLSA requires covered employers to pay their employees at least the federal minimum wage (currently $7.25 an hour) for all hours worked, and overtime premium pay of 1.5x the employee’s regular rate of pay for all hours worked over 40 in a workweek.
In its final rule issued yesterday, the DOL doubles the current salary threshold under which all employees must be paid overtime for any hours worked over 40 per week. The new rule sets the standard salary level of a full-time salaried worker to $913 per week, or $47,476 annually. The 500-plus-page rule will take effect on December 1, 2016, giving employers about seven months to make necessary changes. NACS supports the effort to update the threshold so that it reflects today’s economic situation, but maintains that the DOL went too far.
The final rule also takes the unprecedented step of setting the salary threshold to adjust every three years instead of annually, as initially proposed. The first update will take effect on January 1, 2020. “Based on historical wage growth in the South, at the time of the first update on January 1, 2020, the standard salary level is likely to be approximately $984 per week ($51,168 annually for a full-year worker) and the [highly compensated employee’s] total annual compensation requirement is likely to be approximately $147,524,” according to the final rule.
Throughout the rule-making process, NACS has provided comments to DOL urging the department to revert to its traditional methodology, which would result in a lower salary threshold. NACS also successfully urged the department not to make changes to the duties test for determining if employees are eligible for the overtime exemption categories. Per the final rule, the DOL did not make any changes to the duties test.
Recourse to require the DOL to go back to the drawing board and draft a new overtime rule is possible through legislation pending in both the House (H.R. 4773) and the Senate (S. 2707, the Protecting American Workplace Advancement and Opportunity Act). NACS supports the legislation. Updated compliance information will be available soon via the Compliance Resource Center to NACS retailer members only.
Across the board, retail and restaurant industry reactions to DOL’s new overtime rule are consistent:
“The threshold for exempt employees in the final regulations is still too high,” Angelo Amador, senior vice president of labor and workforce policy and regulatory counsel at the National Restaurant Association, said in a statement. “Restaurants operate on thin margins with low profits per employee and little room to absorb added costs. More than doubling the current minimum salary threshold for exempt employees, while automatically increasing salary levels, will harm restaurants and the employer community at large.”
Rob Green, executive director of the National Council of Chain Restaurants, called the new standard “outrageous,” noting that by dramatically increasing the wage threshold for determining a restaurant manager’s overtime eligibility, “key management positions will be eliminated, restaurant employee career advancement will be derailed and workplace morale will plummet.”
Jennifer Safavian, executive vice president for government affairs at the Retail Industry Leaders Association, commented: “While a review of the current overtime threshold is justifiable, the dramatic changes imposed by the Department of Labor are not. The rule will certainly hurt those that it purports to help. Specifically, the rule will cause retail employees who are forced to be reclassified from salaried to hourly to lose much of the flexibility and upward mobility they value.”
The International Franchise Association said that the new overtime rule will force thousands of employers to shift the pay status of their employees from salaried to hourly and diminish their quality of work life. “Far from ‘giving America a raise,’ the new overtime rule will compel many franchise businesses to reduce their managers’ take-home pay simply to comply with the extreme new salary level,” said IFA President & CEO Robert Cresanti.