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Two Important Wage-Related Updates

This has been an action-packed week on the wage and hour frontier.  Two important decisions at the federal level are expected to significantly impact most employers going forward.

Revised Overtime Rule

First, on Thursday evening, the Department of Labor (DOL) announced its long-awaited proposed rule to update the salary exemption threshold under the Fair Labor Standards Act (FLSA) from its 2004 levels.  All employees who are paid a salary falling below this threshold are categorically non-exempt and are, therefore, eligible for overtime whenever they work over 40 hours in a workweek.

Readers of this blog will recall that the Obama administration proposed a rule in 2016 that would have more than doubled the salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).  As we have catalogued, the 2016 rule was struck down by a federal judge in Texas.  Following the 2016 election, the Trump administration appealed this ruling to the Fifth Circuit, which stayed the appeal pending further rulemaking by the DOL.

The newly proposed rule charts a middle path between the current baseline and the high water mark of the invalidated 2016 rule, using the same methodology as the 2004 rule currently in effect.  Specifically, employees who are paid a salary of less than $679 per week ($35,308 annually) would be categorically eligible for overtime.  (The “duties test” component of the exemption analysis remains unchanged.)  As the DOL observed, employers who wish to avoid overtime obligations “may opt to raise salary levels, reorganize workloads, adjust work schedules, or spread work hours[.]”

Similarly, the salary threshold for “highly compensated employees” would increase from exactly $100,000 to $147,414.  The rule would also require the DOL to propose an updated rule every four years (as opposed to automatically updating every three years).

This rule, which is anticipated to take effect in January 2020, is projected to affect 1.1 million employees (as opposed to 4.2 million under the invalidated 2016 rule).  Further litigation is expected in the meantime, however, so stay tuned.

Mandatory Pay Reporting

Bookending the week, a federal judge in the District of Columbia issued a ruling on Monday that vacated the Trump administration’s efforts to stay additional collection of worker pay data from certain employers.

Specifically, under Title VII and its regulations, employers with 100 or more employees – but not including higher education institutions, primary and secondary school systems, and State and local governments – must file annual “EEO-1” reports.  These reports show the number of employees that employers have by job category, sex, race, and ethnicity, and ostensibly offer the agency details that it may use to identify potential unlawful wage discrimination.

In 2016, the EEOC proposed an additional component (known as “Component 2”) to these reports that would also require information about employees’ W-2 earnings and hours worked and that would have taken effect last March.  In August 2017, however, the Office of Management and Budget (OMB) stayed the Component 2 collection efforts, reasoning that the additional requirements would impose undue burdens on covered employers.  The National Women’s Law Center and others subsequently filed a lawsuit to challenge this stay.

Judge Tanya Chutkan agreed with the challengers that OMB failed to follow the required administrative procedures to implement the stay, concluding that that agency’s action was “arbitrary and capricious” and, therefore, invalid.

As a result, and as explained on the EEOC’s website, covered employers must now submit both the traditional EEO-1 data and this “Component 2” data between March 18 and May 31, 2019.  Many forecasters expect that the agency will extend this deadline, given the uncertainty introduced by this ruling, but the deadline remains in effect unless and until stated otherwise.

The administration has until April 3 to appeal the ruling to the D.C. Circuit and may seek a stay of the ruling in conjunction with such an appeal.  Again, please stay tuned.

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