Ms. Mary Ziegler
Assistant Administrator for Policy
United States Department of Labor
200 Constitution Avenue, NW
Room S-30502
Washington, DC 20210
Dear Ms. Ziegler:
Re: RIN 1235-AA11, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees
On behalf of Business Roundtable, an association of chief executive officers of leading U.S. companies, I am writing in response to the Proposed Rule and request for comment, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,” published by the Department of Labor (DOL) on July 6, 2015.
Business Roundtable supports efforts to update and modernize the current overtime rule regulations under the Fair Labor Standards Act (FLSA). However, we have concerns regarding several aspects of the Proposed Rule, which we have outlined below. We strongly urge the Department to address these issues prior to issuing any Final Rule.
Salary Threshold Increase is Unrealistic
The primary purpose of the Proposed Rule is to update the exemption salary requirements, which are currently set at $23,660 per year for a full-year worker. Business Roundtable agrees that the current level, last increased in 2004, should be increased. However, the proposed immediate doubling of the salary level to $47,892 is significantly out of proportion with prior, more reasonable increases. It also fails to maintain the historic concept of factoring in regional and industry differences.
The impact of such a drastic change – which could terminate the exempt status of more than 5 million workers – is significant and would adversely affect many of the employees the Administration appears to be trying to assist. In the modern workplace, exempt employees enjoy many benefits not otherwise provided to their non-exempt colleagues. In some cases, this is a non-tangible benefit, such as the status of having a more senior role in an organization, but in many other cases, the changes have a more tangible effect.
For example, because employers must track each and every hour for non-exempt employees, they have far less flexibility in providing these employees the ability to work from home or other remote locations. Exempt employees also routinely have the benefit of leaving work for family events, such as a child’s school function, without facing a smaller paycheck at the end of the month. Even the widespread practice of providing exempt employees with smartphones would be in jeopardy, given the challenges of managing their use without triggering overtime.
Automatic Salary Level Increases are Unwise
Business Roundtable is particularly concerned with the implications of the proposal’s request for comment on the potential future use of automatic increases to salary levels, whether based on inflation or using a 40 percentile threshold indexed to the weekly earnings of all full-time salaried workers nationwide. Although there may be some benefit to having more frequent, less drastic, increases to the salary threshold, the concept of automatic adjustments presents its own set of problems.
For example, employers would bear a new administrative burden, including additional compliance costs, by having to annually review and, as needed, update each employee’s exemption status. The long-term impact of such increases, depending upon how they are implemented, could significantly blur the distinction between exempt and non-exempt jobs.
Duties Test Changes Require Separate Rulemaking
The Proposed Rule presents a series of questions related to what changes may be necessary to the duties test, which in conjunction with the salary threshold, is used to determine exempt status. However, the Proposed Rule fails to include any specific proposed rules in this area. Business Roundtable agrees that changes to the duties test may be necessary and that the questions posed are relevant to this conversation. However, we would be deeply concerned if this conversation led to changes to the duties test in the Final Rule.
Making such fundamental changes would, at minimum, run counter to the spirit of the Administrative Procedure Act by precluding the opportunity to provide employers a meaningful role in rulemaking. Business Roundtable strongly urges that any specific changes to the duties test be included as part of a separate Notice of Proposed Rulemaking (NPRM) to enable meaningful input from employers and other stakeholders.
Sales Workers and Bonus Pay Guidance are Unaligned with Today’s Workplace
The Proposed Rule notes that “several employers encouraged the Department to consider nondiscretionary bonuses in determining whether the salary level is met, noting that such bonuses are a key part of exempt employees’ compensation in their industries and contribute to an ‘ownership mindset.’”
Business Roundtable joins these employers in urging the Department to consider nondiscretionary bonuses as a part of salary level calculations. Furthermore, we highlight the importance of classifying both inside and outside sales personnel as exempt employees. In today’s modern workplace, inside sales personnel rely on technology to perform their work, as do their outside sales counterparts, reducing the differences in classification to a minimum.
Business Roundtable Outlines Ways to Modernize FLSA Overtime
As part of a separate duties test NPRM (as noted above), Business Roundtable endorses several changes that would truly modernize rules governing FLSA overtime exemptions. These include changes that would:
- Clarify the exemption from overtime pay for administrative employees by removing the “discretion and independent judgment with respect to matters of significance” requirement.
- Clarify the “production versus staff” dichotomy currently embedded in the administrative exemption, including ensuring that sales positions are not classified as production positions.
- Clarify the exemption from overtime pay for professional employees to include employees in professions who have substantially the same knowledge level as degreed employees, but who attained such knowledge through a combination of work experience, training in the armed forces, attending a technical school, attending a community college or other alternate forms of instruction.
- Provide a “safe harbor” from lawsuits to employers that reclassify employees as nonexempt in good faith.
- Establish clear guidelines for determining what are – and what are not – considered “hours worked” to account for today’s increasingly remote, virtual workplace.
Conclusion
Business Roundtable appreciates this opportunity to comment on the Proposed Rule, but remains very concerned about the negative impact many of its policies would have on employers and employees alike. We urge the Department to rescind the current NPRM and immediately reevaluate the methodology used to determine the proposed salary threshold. Furthermore, we urge the Department to work with the employer community and other stakeholders to modernize FLSA overtime exemption duties rules in ways that account for the characteristics of the modern economy, the best interests of employees and the needs of the employer community.
Sincerely,
John Engler
JE/dl