FLSA Overtime Law Uncertainty

by Lyle Leritz, Ph.D. 26. September 2017 10:06


The Fair Labor Standards Act (FLSA) was introduced in 1938 with the objective to improve labor conditions, protect underage employees, provide a minimum wage, and allow for overtime pay. Several amendments to the FLSA occurred over the years, with a significant change in 1963 with the Equal Pay Act. This amendment required employers to pay men and women the same wage for jobs that required equal skill, effort, and responsibility and were performed under similar working conditions. Legitimate pay practices like seniority, merit-based programs, or systems that tied earnings to quantity or quality still allowed for unequal pay. Over the next 41 years, the FLSA was amended to increase minimum wages (multiple amendments), provide protections for specific types of workers (e.g., migrant and seasonal workers, etc.), and other relatively small changes.
In 2004, significant changes were made regarding the definition of what constitutes an exempt employee. This change required that exemption status must be determined based on actual job duties and functions and not solely on title. The focus for exemption status changed from the job title to the job description. As a result of this change, lower-level supervisors could find themselves reclassified as exempt under the executive classification and lose prior overtime rights despite their job remaining the same. On the other hand, some employees saw their exempt status changed to non-exempt as a result of this change. Additional changes in 2004 introduced a federal salary threshold for exemption of $23,660 annually and the highly compensated “non-exempt” employee provision.
In July of 2015, the Department of Labor (DOL) published a proposed rule change that included substantial changes to the FLSA. The most noteworthy change was tying the minimum salary threshold to the 40th percentile of weekly earnings for full-time salaried workers as determined by Bureau of Labor Statistics figures. This would allow the minimum threshold to change without requiring changes to the law. More significantly, this would increase the minimum threshold to $50,440 annually. The proposal also suggested tying the highly-compensated exemption to the 90th percentile of full-time salaried workers. The final rule publication was announced on May 18, 2016, and was set to go into effect on December 1 of the same year.
In response to these upcoming rule changes, ERI made changes to the methodology of the Occupational Assessor’s FLSA module. After implementing new code and running the application through testing, it was set to release to the public in line with the new law. However, on November 23, 2016, a United States District judge imposed an injunction that stopped the rule's enforcement from taking effect. This meant the new rules were not going into effect, at least for the short term. As a result, ERI removed the changes made to the FLSA application and reverted the application to its prior state. Nevertheless, we retained the updated application logic in anticipation of any future change (the injunction was temporary in nature).
As a result of the injunction the DOL called again for public comments on the proposed rule near the end of July 2017 for a window of 60 days. The ultimate outcome is unknown at this point, and the end result of the comment period is likely to be a complete rescinding or revision of the proposed rule. Currently, we do not specifically expect any particular changes; as such, we are patiently waiting the outcome of the process. Regardless of any outcome, ERI is ready to implement rule changes into the FLSA application that reflect the most recent and up-to-date overtime laws.