CIRT joined a number of construction industry groups and associations during a “listening” session conducted by the Department of Labor, Wage & Hour Division, regarding their plans to issue a proposal changing the salary level test for exemption from minimum wage and overtime pay for executive, administrative, and professional employees (i.e., “salary threshold” exemption). Generally, CIRT joined others in expressing the view this was a particularly inopportune time to suggest a major across the board hike to the salary threshold – particularly given the inflationary spiral impacting the country. Moreover, CIRT stresses that this requirement should be seen only as a THRESHOLD salary level, NOT an attempt to set what “should” be the salary for employees by the Department. . . That determination rightfully and appropriately belongs to the private sector companies based on given market, economic, regional, industry, company, and competitive norms. Notwithstanding, DOL left the distinct impression that there will be a rulemaking in the near future proposing a substantial hike; even though one just took effect in January 2020.
The DOL asked for input on a set of specific matters, as follows:
(A) The appropriate salary level above which the exemptions for bona fide executive, administrative, or professional employees should apply?
This question seeks to substitute for the complex law, regulations, and processes by simply focusing on what “the number” should be for exempt salaries. This approach is troubling given the Wage & Hour Division’s apparent purpose or goal is to “ensure that middle class jobs pay middle class wages [by] extending important overtime pay protections to millions of workers and raising their pay;” which is wholly inappropriate. As discussed at the time of the Texas court decision in 2016, DOL should not be fixated on a number as if it is the “only” measure or determinative factor for eligibility in the executive, administrative, or professional exemption. [It was noted, basic economics – dictates that costs are passed along raising prices – therefore, arbitrary raises to by regulatory rules will come back around in higher expenses for goods and services, defeating the DOL’s reasoning that they can determine what a “middle class” pay should be. AND, as noted above – this exercise is meant to set a THRESHOLD or FLOOR. . not an average salary level].
(B) The cost and benefits of increasing the salary level to employers and employees, etc.?
In realty the business community would likely face unpalatable choices when it comes to costs and benefits with a substantial change to the salary threshold; namely:
(C) The best methodology for updating the salary level, and the appropriate frequency of updates?
- Reduce their service levels to avoid overtime – which would undermine the effectiveness and possibly safety protocols.
- Convert the affected employees to non-exempt status at a lower hourly rate, so that payment of overtime does not increase their overall annual compensation – which would harm morale and be perceived as a demotion.
- Cut positions/not hire to fund the additional overtime obligation – which would hurt the firms by diminishing and hampering their ability to seek out new projects/deliver on current ones (and harm those terminated);
- Require the remaining exempt employees to absorb some of the duties of the newly non-exempt employees – which would be viewed as an unfair burden by the remaining exempt employees who are at or near capacity already, while restricting the newly non-exempt employees from career growth; and
- Finally, such a change in status will complicate or impede remote work, flex hours, and other accommodations made to the workforce (particularly in lieu of Covid impacts), not to mention it will further impact construction firms regarding application of Davis-Bacon Act prevailing wage requirements to formerly professional staffs now considered hourly.
It was discussed the most favorable approach would allow some flexibility especially avoiding a “one size fits all” process, with longer year intervals (unless a strong showing based on carrying the burden of economic, market, and competitive proof to reduce the time). The process would include:
(i) Maintain a system that adjusts the salary threshold on a periodic, predictable, and manageable level for businesses to plan [thus, not until January 2025, i.e., five years since the last adjustment to the salary threshold took effect];
(ii) Provide for or take into account depressed areas or industries by use of a two-thirds (or three-quarters) percentage factor for inflation (e.g., if inflation is a cumulative 12% over five years, the multiplier to the salary is x 1.08 (12 x .667) or 1.09 (12 x .75);
(iii) regional accommodations for cost of living, and
(iv) possible urban or locality adjustments or exceptions if necessary.
(D) Whether other changes to the overtime regulations are warranted?
Minor adjustments would be useful to:
(a) clarify that the threshold/minimum salary level amount applies only to full-time exempt employees, and
(b) that the salary level may be pro-rated for part-time employees otherwise meeting the “exempt” duties and salary basis requirements.