DOL Seeks Input from Employers regarding EAP Exemption

Regulation | August 01, 2017 | by Jennifer Hilliard

In a Request for Public Comment published in the July 26th edition of the Federal Register, the Department of Labor (DOL) notified stakeholders that it is seeking input on the Executive, Administrative, Professional, Outside Sales and Computer employee (EAP) exemption from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

This so-called “white collar” exemption was revised by regulation scheduled to take effect on December 1, 2016, that raised the threshold for the salary test from $455 per week to $913 per week. However, a Federal court issued a nationwide injunction against the revised regulation and in a recent court filing associated with an appeal of the injunction filed by the Obama administration, the Trump administration elected not to defend the revised regulation. Instead, the DOL under the Trump administration stated its intention to pursue new rulemaking at a later date. The Request for Public Comment is likely the first step in that process. Comments are due on September 25, 2017.

In the Request for Public Comment, DOL states that it is aware of stakeholder concerns that the salary threshold specified in the 2016 regulation was too high and excludes too many workers who would otherwise qualify for the EAP exemption. Accordingly, the Request for Public Comment includes 11 questions with respect to which the DOL is seeking input from stakeholders relative to the EAP exemption:

  • In 2004 the DOL set the standard salary level at $455 per week, which excluded from the exemption roughly the bottom 20 percent of salaried employees in the South and in the retail industry. Would updating the 2004 salary level for inflation be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used? Alternatively, would applying the 2004 methodology to current salary data (South and retail industry) be an appropriate basis for setting the salary level? Would setting the salary level using either of these methods require changes to the standard duties test and, if so, what change(s) should be made?
  • Should the regulations contain multiple standard salary levels? If so, how should these levels be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? For example, should the regulations set multiple salary levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? What would the impact of multiple standard salary levels be on particular regions or industries, and on employers with locations in more than one state?
  • Should the DOL set different standard salary levels for the executive, administrative and professional exemptions as it did prior to 2004 and, if so, should there be a lower salary for executive and administrative employees as was done from 1963 until the 2004 rulemaking? What would the impact be on employers and employees?
  • In the 2016 final rule, the DOL discussed in detail the pre- 2004 long and short test salary levels. To be an effective measure for determining exemption status, should the standard salary level be set within the historical range of the short test salary level, at the long test salary level, between the short and long test salary levels, or should it be based on some other methodology? Would a standard salary level based on each of these methodologies work effectively with the standard duties test or would changes to the duties test be needed?
  • Does the standard salary level set in the 2016 final rule work effectively with the standard duties test or, instead, does it in effect eclipse the role of the duties test in determining exemption status? At what salary level does the duties test no longer fulfill its historical role in determining exempt status?
  • To what extent did employers, in anticipation of the 2016 final rule’s effective date on December 1, 2016, increase salaries of exempt employees in order to retain their exempt status, decrease newly non-exempt employees’ hours or change their implicit hourly rates so that the total amount paid would remain the same, convert worker pay from salaries to hourly wages, or make changes to workplace policies either to limit employee flexibility to work after normal work hours or to track work performed during those times? Where these or other changes occurred, what has been the impact (both economic and non-economic) on the workplace for employers and employees? Did small businesses or other small entities encounter any unique challenges in preparing for the 2016 final rule’s effective date? Did employers make any additional changes, such as reverting salaries of exempt employees to their prior (pre-rule) levels, after the preliminary injunction was issued?
  • Would a test for exemption that relies solely on the duties performed by the employee without regard to the amount of salary paid by the employer be preferable to the current standard test? If so, what elements would be necessary for a duties-only test and would examination of the amount of non-exempt work performed be required?
  • Does the salary level set in the 2016 final rule exclude from exemption particular occupations that have traditionally been covered by the exemption and, if so, what are those occupations? Do employees in those occupations perform more than 20 percent or 40 percent non-exempt work per week?
  • The 2016 final rule for the first time permitted non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Is this an appropriate limit or should the regulations feature a different percentage cap? Is the amount of the standard salary level relevant in determining whether and to what extent such bonus payments should be credited?
  • Should there be multiple total annual compensation levels for the highly compensated employee exemption? If so, how should they be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? For example, should the regulations set multiple total annual compensation levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? What would the impact of multiple total annual compensation levels be on particular regions or industries?
  • Should the standard salary level and the highly compensated employee total annual compensation level be automatically updated on a periodic basis to ensure that they remain effective, in combination with their respective duties tests, at identifying exempt employees? If so, what mechanism should be used for the automatic update, should automatic updates be delayed during periods of negative economic growth, and what should the time period be between updates to reflect long term economic conditions?

LeadingAge encourages members and others to submit comments by the September 25th deadline via the Regulations.gov web portal. Additionally, LeadingAge plans to submit comments. Those desiring to submit comments for inclusion in the LeadingAge submission should send them to Jennifer Hilliard on or before September 14, 2017.