The New Federal Overtime Rules: It’s Déjà Vu All Over Again (Almost)

Some employers may be feeling the strange sensation that they had experienced new overtime rules in a past life. But no need to consult with a psychic. You did experience new overtime rules – in this life, and only three years ago. 

Now it’s déjà vu all over again.

Obama-era Overtime Rule Proposal

During the later years of the Obama administration, the United States Department of Labor (DOL) opened a rulemaking proceeding to modify the minimum salary required for employees to qualify for most of the white-collar exemptions under the Fair Labor Standards Act (FLSA). For restaurant industry employers, these exemptions include, among others, the executive exemption, which is often applied to restaurant managers and assistant managers.    

Under the final regulations issued in 2016, the minimum salary would have more than doubled – from $455 a week to $913 a week. Some other changes were also made, one of which was to set up an automatic indexing of the salary level every three years afterward. However, in November 2016, shortly before the changes would have taken effect, a federal court in Texas invalidated the changes and enjoined the DOL from implementing them.  

DOL’s Renewed Proposal under Trump Administration

The DOL under the Trump administration sought public input on a new overtime rule in 2018 by publishing a series of questions and inviting the public to respond as well as by holding six public listening sessions. After considering more than 200,000 comments, the DOL published proposed overtime regulations in March of this year that will, if finalized, make the following changes: 

• Increase the standard minimum weekly salary from $455 to $679 ($23,660 to $35,308, annualized);
• Increase the minimum annual compensation for “highly compensated employees” from $100,000 to $147,414 (a proposed increase that is actually higher than what the Obama DOL had proposed);
• Allow up to 10 percent of the standard minimum salary to consist of nondiscretionary bonuses and other forms of incentive compensation that may be paid annually or more frequently (this is currently not permissible); and
• Provide for periodic adjustments over time, but only after notice-and-comment rulemaking, and only every four years (under the Obama rule, the adjustments would have been automatic and would have occurred every three years without the need for notice-and-comment rulemaking).

Neither the Obama regulations nor the Trump proposal would make any changes to the job duties criteria that apply to the white-collar exemptions. 

In a nutshell, the Trump proposal is similar to the Obama regulations, but more moderate, with the exception of the larger increase in the “highly compensated employee” threshold. Assuming no extension, the deadline for public comment on the Trump proposal was set to expire on May 21.

What Will Proposed Changes Mean for Restaurant Employers?

Probably nothing in the immediate term. The public comment period is often extended, but even after it closes, the DOL must review and consider the comments received. Once that is done, the DOL could move ahead with a final rule, or it could issue a new proposed rule with amendments. The DOL knows that 2020 is an election year, and politics in election years have a way of derailing much of the legislative and regulatory work of the government. Thus, from the DOL’s standpoint, time is of the essence. But there is a very good chance that opponents of the proposal will mount a legal challenge in an effort to derail it, much like the opponents of the Obama DOL proposal did in 2016.  

Assuming the Trump administration proposal does make it to the finish line, many in the restaurant industry think that the proposed minimum annualized compensation level is not unreasonable or unattainable for restaurant-level managers. Moreover, the current $23,660 minimum has not been adjusted since it was set 15 years ago, in 2004.On the other hand, some restaurant employers, particularly those in lower-cost areas of the country, think that even the $35,308 annualized minimum will be too high. 

Either way, the reality is that the restaurant industry should have a less difficult time complying with the new proposal than it would have had the Obama regulations ever taken effect. To assess your own situation, now would be a good time to compare your current salary levels with what is contained in the proposal to determine if adjustments would be needed if the proposal becomes final.

With the political heat already on high, and the expectation that it will only get hotter as we approach the 2020 elections, the DOL will need to expedite this rulemaking proceeding if it hopes to get its proposed rule in place. In the meantime, the minimum salary level set in 2004 remains in effect.