Currently, the U. S. Department of Labor Wage and Hour Division (Wage & Hour) has been conducting a series of listening sessions in various regions to hear what industry and workers’ organizations thoughts are about raising the salary level for exempt employees. 

The last time this approach was attempted under a Democratic administration, the Obama Administration, the courts shut it down.  First, the salary level would have been up to $913 per week, or $47,476 per year, which would match the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage national Census Region, which is the South.  It would also be indexed every three years.  Pundits expected the salary level to increase to $70,000 or so by 2022.

On August 31, 2017, a Texas court struck down the regulations stating that Wage & Hour's minimum salary level test disregarded an analysis of an employee’s duties, functions, or tasks in determining if such employee qualified for an exemption. In other words, the court found that the rule permitted employees who were previously exempt to qualify for overtime pay on the basis of salary alone.

During the Trump administration, Wage & Hour raised the minimum salary for “white-collar” exemptions from $23,660 to $35,568 annually or $684 per week as of January 1, 2020.  Industry and politicians were satisfied at the time with this increase.  An increase should have happened, since the last time the salary level was set, it was 2005.

However, it appears that the Obama administration approach is coming back.  Although nothing is official yet, the rumor mill is working overtime. 

At the listening session, ASE participated in the discussions.  First, it was pointed out that increasing the salary level would not only add fuel to the fire in an inflationary period but would likely have the opposite effect on labor costs, forcing employers to manage their highest expense in likely negative ways from layoffs to possible benefit reductions, as healthcare increases are starting to hit after two years of being flat. 

It was also pointed out that many exempt employees would be deflated if they found they were now classified as non-exempt, and the increase would leave employers with less flexibility for employees, likely adding more fuel to the great resignations. 

Next, ASE pointed out that the law is from the 1930s and since then, especially in the past 10 years or so, so many new jobs have arisen that the law has not caught up.  The duties test should be the focus, like it was it 2005 with the expansion of the professional exemptions to the IT jobs by doing a thoughtful review of what has changed since that time.  Further, ASE pointed out that the political issue of fast food and other service industries should be separated from other industries like manufacturing as those workers are a unique class, again leading to a discussion that the duties test should be reviewed.

Apart from the likely increase in the salary levels, employers have to worry about state laws.  For example, the Ohio Supreme Court ruled that the Bureau of Workers’ Compensation (BWC) had determined that an underground-cable installation company had misclassified its workers as independent contractors (ICs) rather than as employees.  Even though BWC analysis was flawed and the workers were likely ICs, the court deferred to BWC and ruled that under Ohio law, so long as there is “some evidence” that could support the BWC’s conclusion, the BWC’s decision was untouchable.

Also recently, the most “fun” state of the union, California, the California Supreme Court held that premium wages for rest and meal periods – known as “rest and meal break violations” – are considered “wages” under California law. Employees are now able to recover additional monies if employers fail to include any unpaid premiums on their employee paystubs or payment of final wages.  The Court overruled the appellate court and ruled that under Labor Code 226.7 employers are subject to penalties if they fail to include rest and meal period violations on paystubs and final wages and that the applicable pre-interest rate for unpaid premium wages is 7% as set by California law.

Finally, with the pandemic many are working remotely and longer hours.  If non-exempt, the organization needs to track time worked or suffer a potential lawsuit for wage theft under state and federal laws.

Therefore, HR should talk to legal counsel about wage and hour pitfalls and obstacles in the states they have employees, which in today’s new environment of remote work, could subject the employer to a nightmare of contrary and/or interlocking laws and violations from paystubs to definitions of overtime. 

Source: Ogletree Deakins 5/23/16, Hinshaw & Culbertson LLP 9/1/17, Baker Hostetler LLP 5/31/22, Barnes & Thornburg LLP 5/26/22