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Impending Overtime Rules Impact Millions of Americans

- Wednesday, November 04, 2015

Overtime pay has been at the forefront of the Obama Administration’s and the Department of Labor’s (DOL) agendas, and changes to two key rules translate this interest into impact for millions of US workers and their employers.


The updated federal overtime rule and the final home care rule eliminate key economic exemptions, thereby extending minimum wage and overtime pay to millions of Americans in the labor force.  An examination of key occupational statistics, and the DOL’s economic projections and calculations for the impact of both these rules, clarifies how the Administration and DOL expect to achieve widespread economic benefit to lower wage earners, especially women, thereby also narrowing the gender wage gap.  In addition, DOL expects exempt/nonexempt misclassification issues to diminish in importance due to a shift from scrutiny of the duties test to the clear line of the salary threshold demarcation.


Facts and Figures: The Updated Federal Overtime Rule Proposal


The proposed updates to the federal overtime rule have generated much debate. Most recently, on October 8, 2015, a subcommittee of the US House of Representatives’ Small Business Committee held a hearing, “The Consequences of DOL’s One–Size-Fits-All Overtime Rule for Small Businesses and their Employees."  Representatives from a number of industry groups spoke out against many aspects of the proposed federal overtime rule, echoing comments received after the proposal was published in the Federal Register.  In particular, the representatives questioned the rationale behind the choice of the 40th percentile threshold and challenged the use of Bureau of Labor Statistics (BLS) data for salaries of all American employees, instead of a weighted approach which would index salaries based on available geographic and industry data.


The DOL is currently reviewing the record breaking 290,000 comments it received, before drafting the final rule for implementation.  This sweeping update to the Fair Labor Standards Act (FLSA) would more than double the salary threshold for overtime exemption in “Defining and Delimiting the Exemptions for Executive Administrative, Professional, Outside Sales and Computer Employees” or white collar workers.  To determine the new salary threshold separating exempt from nonexempt status, the DOL relied on Current Population Survey (CPS) statistics prepared by the BLS, specifically the usual weekly earnings of non-hourly full-time workers.


The rule proposes raising the salary threshold to $50,440 a year ($970 a week) from its current level of $23,660 a year ($455 a week) set in 2004, the last time it was updated.  This is the equivalent of the 40th percentile of weekly earnings.  The current level of $23,660 is below $24,008, the 2014 poverty threshold for a family of four.  Based on projections, the DOL has determined that 10.9 million workers or 10% of the current workforce will no longer be overtime exempt, assuming a 2016 implementation.  The proposed rule also updates the threshold from $100,000 to $122,148 for “highly compensated employees” (HCEs) who are exempt from overtime pay.  This represents the 90th percentile of weekly earnings. This extension is expected to affect 36,000 employees in 2016.


In addition, the DOL proposes to automatically update the standard salary and HCE total annual compensation requirements annually.  This would be achieved either by maintaining a fixed percentile of earnings (40th and 90th percentile of weekly wages for full time salaried workers, respectively) or by updating the salary and compensation levels based on changes in the CPI-U (Consumer Price Index value for Urban consumers).


For a visual explanation of this rule proposal and DOL’s perspective, visit the NPRM website and view the DOL’s four-minute YouTube presentation, “What is overtime?”


Facts and Figures: The Final Home Care Rule


The final home care rule to extend minimum wage and overtime pay to home care and live-in domestic workers employed by agencies or third parties (not by individuals or families), known as the “Application of Fair Labor Standards Act to Domestic Service” will affect well over 1 million workers.  The DOL announced its intention to start preliminarily enforcing this rule in a few weeks, on November 12; following Chief Justice Roberts of the U.S. Supreme Court recent denial of the Home Care Association’s application to stay or stop the DC Court of Appeals’ decision to uphold this rule.


The BLS’ annual Occupational Employment Statistics (OES) and Employment Projections (EP) program data are primary sources cited in the rule.  According to these data, an estimated 1,297,039 home care workers, personal care aides (PCAs) and home health aides (HHAs), are currently not receiving overtime under the long-standing domestic exemption (Federal Register, 60527).  The data also indicated that PCAs and HHAs were the fastest growing US occupations in 2012, but that they had the lowest median wages ($19,910 and $20,820, respectively) of all the fastest growing occupations.  Women make up the majority of PCAs and HHAs; in fact, in 2014, 83.9% of all PCAs were women.


The designation of PCAs and HHAs as fastest growing occupations is not new.  The numbers of PCAs and HHAs has tripled between 1988 and 2001.  Subsequently, between 2001 and 2011, the number of HHAs increased 65 percent and PCAs doubled (Federal Register, 60458).  By 2022, the numbers of people, primarily women, working in these occupations are expected to increase by nearly 50%.


For an alternate view of the impact of the rule, based on a survey of 542 franchise companion care businesses, read the “Economic Impact of Eliminating the FLSA Exemption for Companionship Services.”


What's Next for the Federal Overtime Proposal and Home Care Rule?


Based on the organizations responding and numbers of comments received, observers are unsure of when the final FLSA rule will be drafted and released, and how closely it will follow the form it currently has.  Like the Home Care rule, it may be the focus of a long period of litigation and appeal.  Indeed, although the Home Care rule’s implementation date is quickly approaching, home health care organizations are reportedly ready to appeal the rule to the full DC Circuit Court of Appeals, and depending on the outcome, possibly the US Supreme Court.


If you have any questions about this article and overtime matters, contact one of our wage and hour experts.

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