From workers’ compensation to safety issues, the U.S. Department of Labor is the de facto guardian of worker’s interests. To that end, the agency often finds itself at odds with special interest groups over a wide variety of regulations, including those directing employers on how to handle overtime pay.
One of the most controversial new rules from the department, the Fair Labor Standards Act (FLSA) aimed to raise the salary threshold for employees eligible for overtime. However, after a federal judge temporarily blocked the measure, employers are now in a period of uncertainty as they wait to find out whether the rule will move forward or be rejected. Experts encourage companies in the construction industry and across the business world to prepare for either scenario.
What you need to know about FLSA
FLSA requires that an employer pay its employees 150% of their regular hourly rate for any time worked beyond 40 hours — also referred to as "time and a half" — in a standard workweek.
There are, however, workers who are exempt from the overtime pay requirement, including those employees who perform certain duties — executive, administrative or professional — and are paid a flat threshold salary of at least $455 every week. In the construction industry, where piecework and relatively high hourly rates are the norm, examples of exempt employees might be an accounting manager, draftsman, superintendent or project manager. Even if these exempt employees were to work 50 hours a week, they would not be paid at an overtime rate.
"You have to be ready and prepared for what you absolutely think will not happen."
Regulatory counsel for the Associated General Contractors of America
The DOL is also tasked with enforcement of these pay regulations, and, according to attorney Scott Wenner, partner at Schnader Harrison Segal & Lewis, the agency does routine audits, with many prompted by complaints. However, it’s not just the DOL coming down hard on those who skirt the overtime laws. Wenner pointed to a "blizzard" of class-action suits against employers — related to exempt employee misclassification — brought through private actions that have resulted in what he characterized as major judgments.
A key problem as the DOL saw it, however, is that the $455 per week threshold, which works out to be $23,600 per year, hadn’t been adjusted for approximately 20 years and does not accurately reflect the pay level of someone likely to be a truly exempt employee.
So when the DOL announced its final rule to raise the salary threshold to $913 per week — or $47,476 per year — in May 2016, its stated rationale was that it was looking out for millions of American workers who should be receiving overtime pay. This move drew the ire of many industries, including construction, that were now faced with shelling out extra money to workers who had previously been exempt from that requirement.
Industries pushing back
In response, groups like the Associated Builders and Contractors and the National Association of Home Builders, as well as representatives from other industries, filed a lawsuit against the DOL in September in an effort to block the rule’s implementation.
In addition to that suit, 21 states brought a separate court action against the department. Both lawsuits asserted that the DOL overstepped its authority by establishing a new threshold and that the change would be a burden for many employers.
NAHB Chairman Ed Brady said in May that doubling the overtime salary threshold would result in salaried employees being bumped to an hourly wage and that the rule did not take into consideration the fact that pay scales differ around the country. Brady referred to the DOL's enactment of the rule as "sheer arrogance."
The Associated General Contractors of America's Brian Turmail told Construction Dive in May that the threshold increase is unreasonable and that the rule would force employers to devote more resources to compliance, not result in higher wages.
Support for the rule change
Of course, there were also plenty of groups in favor of the change, which they considered a long time coming.
"Employers have many options to manage their labor costs and minimize any burden," said attorney Jane Lauer Barker, partner at Pitta & Giblin, which represents a wide variety of construction trade unions. "Employees, on the other hand, in the categories most affected by the rule, are long overdue for fair treatment in terms of either receiving overtime for overtime work or having the salary threshold reflect the economic reality," she said.
Nevertheless, in November, Texas U.S. District Judge Amos Mazzant issued a nationwide injunction against the rule, stating that it created "a de facto salary-only test” when job duties should play the primary role in any analysis.
"Employees in the categories most affected by the rule, are long overdue for fair treatment."
Jane Lauer Barker
Partner at Pitta & Giblin
In Mazzant’s view, by doubling the threshold salary, the DOL was "eliminating what he viewed as being the overriding issue, which was what duties does the employee perform," Wenner said. "He looked into the legislative history and concluded that when Congress enacted the FLSA, [it] was primarily concerned with duties in determining whether someone was exempt. Salary was not written into the law, but the DOL created a test that looked at salary as well as duties."
The judge, Wenner said, did not say that the salary test itself was unlawful, but that by increasing the threshold so dramatically, the agency essentially "wrote the duties test out of existence."
Also related to the salary issue, many groups argued that the DOL did not take into consideration pay scales in various parts of the country when calculating the new threshold, a point that Barker disputes. She said the DOL actually came down from its original proposed threshold and used the 40th percentile of national salaried wages instead. "The USDOL, in fact, responded to comments regarding the threshold," she said.
In fact, Wenner said the federal government has never really allowed for geographic variations when establishing benchmarks for overtime pay or even the minimum wage, but states often enact their own wage baselines to account for the cost of living.
What's next for the overtime rule
So what happens next? According to Jimmy Christianson, regulatory counsel for the Associated General Contractors of America, the "vast majority" of construction firms that he’s been in contact with about the possibility of a new overtime threshold made preparations in advance of the original Dec. 1 effective date, including increasing some workers’ salaries in order to continue their exempt status.
"The safe play is just to be ready," he said. "It’s not a turnkey rule." Christianson said that being prepared for a new threshold involves a lot of conversation with employees and budgetary maneuvers that take time.
In a different view on what it would take for employers to prepare for the rule’s implementation, Barker said there are many near-painless possibilities. First, she said, employers should do re-evaluations to determine which employees are, in fact, truly exempt. "Employers may have misclassified some employees as exempt when they do not meet the duties test," she said.
In addition, Barker said that employees who don’t work a full 40 hours per workweek aren't affected by a threshold increase, and employers can mitigate the cost of any additional overtime by scheduling workers in way that results in 40 hours or less per week.
While it’s the general consensus that the incoming Trump administration is unlikely to continue to defend the new rule, the U.S. Court of Appeals for the Fifth Circuit has responded to the DOL’s request for an expedited hearing with final briefs set for Jan. 31, and oral arguments slated for around Feb. 7.
Even if the new administration chooses to let the matter go, Christianson noted that AFL-CIO has filed a motion to intervene. If granted, that would give the organized labor association the right to continue fighting the injunction.
Barker said the possibility of the AFL-CIO taking up the DOL’s cause is in workers’ interests. "If the agency charged with enforcing the law is unable to promulgate regulations regarding application of overtime rules, there would be a harmful effect on workers’ rights under the law," she said.
As for Christianson, he said it’s anyone’s guess what the court will decide. "If there’s anything November 9 has taught us is that anything is possible, and conventional wisdom is no longer in play," he said, as most experts expected the courts to approve the new rule. "You have to be ready and prepared for what you absolutely think will not happen."