Herbein Conversation - Proposed Rulings in HR: What Employers Need to Know
Welcome to the Herbein Conversation podcast where we explore the issues that matter most to your business. In this episode, Karen DiGioia, Herbein HR Consulting vice president and practice lead, examines the proposed rulings centered on overtime pay exemption.
Amy Klatt: Hello and welcome to an episode of the Herbein Conversation podcast. It's where we dive deep into trending topics that impact your business. I'm your host, Amy Klatt, chief marketing officer at Herbein + Company, and with us today is Karen DiGioa, vice president and practice lead from our consulting practice. Karen has over 20 years of experience helping clients with compensation management, specializing in the areas of market-competitive compensation practices, executive compensation, salary administration, and incentive compensation plan designed to just name a few. Thanks so much for joining us today, Karen.
Karen DiGioia: Thank you so much for having me. It's a pleasure to be here.
Amy Klatt: Great. We're so excited for today's discussion. So, this proposed federal regulation regarding overtime pay exemption has really been dominating the minds of employers and H.R. departments across the country. But before we dove right in, I know that you recently published a blog on what we know so far about this proposed regulation change. Can you give us some of the high-level points from that blog?
Karen DiGioia: Absolutely. You know, the blog really started from the perspective that for many of us in H.R., this feels like deja vu all over again as Yogi Bear would have said. So back in 2016 under the Obama administration, the Department of Labor had proposed and adopted an increase in the salary threshold for overtime exemption to $47,476. And yes, I do have to check my notes to get that number right. It was moving up from $23,660, meaning that employers either needed to shift employees who were making less than that new threshold to a nonexempt status, pay them overtime, or raise their compensation. Either way it was a significant investment expense - whatever you want to call it - for employers. Then, just ten days before the ruling was to go into effect a judge in Texas, a federal judge, overturned the ruling. The judge's argument was that the Department of Labor had exceeded its authority by raising the threshold too high.
Amy Klatt: Wow, so really just like that the regulation was overturned. And what did that mean for employers?
Karen DiGioia: So for employers as we talked about, they had planned for and many of them had proactively made the changes not realizing that the overturn was coming. So they planned ahead. They made the shifts. Well, technically, at that point in time, it would have been okay legally for them to reverse the changes, move people back to exempt status from nonexempt, decrease the base increases, or take them away. But, you know, obviously, that was not going to be a good route. Lots of morale issues. So very few employers went that way. So the bottom line is lots of employers spent a lot of time and a lot of money complying with that threshold change that just didn't stick in the end. So we fast forward to 2023 on August 30th of this year, and this is the deja vu all over again. The Department of Labor announced a new proposed threshold and regulation, which, among other things, adjusted the threshold again. So the new proposal would move the threshold up to $56,068 from where it sits currently at $35,068. They've also proposed an increase of the threshold for the exemption based on highly compensated employees all the way up to $143,009.88. And the proposal also includes if it passes, if it goes through this time, automatic updates of the salary threshold every three years in order to align with I think it's the 35th percentile of the exempt salary population that's out there based on then current earnings data.
Amy Klatt: Okay, great. I can only imagine really what H.R. departments must be feeling knowing the ruling can be announced and overturned just like last time. So what what can employers do to prepare or do they sit tight and wait?
Karen DiGioia: So first of all, as I said before, we don't know what the Department of Labor will actually pass. And we're in a comment period right now up through November 7th, I believe it is. So they are gathering feedback from employers. So we don't know what the final passage will look like. And then based on what happened in 2016, there's a strong, strong likelihood that whatever that final overtime rule looks like this time around, it's going to again be challenged in the courts likely that it will be overtime turned. So having said that, your question should should employers just sit tight and do nothing? And that's rarely a good plan. Another quote, this one's not from Yogi Berra, but the quote goes those who fail to plan plan to fail. So we're not certainly recommending that employers go as far as they did back in 2016, but certainly planning for the future and doing a lot of what ifs would be appropriate. So first step, and regardless of whether all of this was going on or not, this is a wise action to take is ensure that your positions are classified correctly from the perspective of the duties tests. Nothing in this proposal has changed things on the duties test front and I'm not going to get into the duties tests in any great detail here right now or we'd be here forever. But many employers have at least a couple of positions that are incorrectly classified. It's not by intent the interpretation and proper application of the duties test or exemption is not easy. Many of us were hoping that this time around, in addition to the overtime exemption threshold adjustment, that the Department of Labor would take this as an opportunity to create greater clarity around the definitions associated with the duties tests. Unfortunately, that did not happen. There's a lot of gray, there's a lot of room for interpretation. But we do know that the current administration, current Department of Labor, continues to get more and more stringent. Case law continues to get more stringent as well. So look at your current positions. Look at those roles that are sort of on the threshold from a base comp error perspective in terms of exempt nonexempt, those that are on the line and ensure that you are properly classified versus the duties test. When we talk about who do you look at, we know that the new threshold is proposed to go up to I can't do this number off the top of my head yet, but 55, 56 just to be safe, push it up. Look at those exempt employees in positions that are making 60,000 or less. You also want to be taking advantage of the comment period. I can't stress this enough. If the proposed rulemaking will have a meaningful impact to your organization, you want to take this as an opportunity to provide that feedback. Yes, the Department of Labor does read the comments. They do take them into consideration. So now's the time to have a voice, either individually as an organization or through any professional groups that you are a member of.
Amy Klatt: Okay. And that's a really great point. Always with the proposed regulation or a rule change, the comment period is extremely vital for sure. And if we were recapping here, employers should ensure positions are classified correctly, create lists of exempt employees falling between the current and then the proposed threshold, and then to really take advantage of the DOL's comment period, right?
Karen DiGioia: Correct.
Amy Klatt: Okay. And and what else?
Karen DiGioia: Well, in addition to the items that we've talked about, it's really important for organizations to conduct a full analysis of both the market competitiveness of current compensation and internal pay equity. While those two things - market competitive pay and pay equity - are not critical for FLSA compliance, it's important to do your planning for the possible shifts within the context of an overall pay structure that is both competitive with the external market and internally equitable. Employers continue to struggle with the challenges associated with attracting and retaining talent that they need in an environment of rapidly changing wages. Things aren't quite as crazy right now as they were say in 2021 and 2022, but wage increases continue to be a reality. Tight labor market as well as is something that we continue to struggle with and don't really see any shifts in any other time. At the same time, we've got pay transparency, pay equity continuing to gain traction on the regulatory front. They're critical components of a strong employer brand. So looking at those things and ensuring that you are positioned well from those perspectives while you're conducting your FLSA prep work is really, you know, I'm a vegetarian, so I'm going to say you've effectively mashed three potatoes with one fork because I don't want to kill any birds with stone, so.
Amy Klatt: Got it. And and we definitely know that attracting and retaining talent is a top challenge on everyone's plate, regardless of industry. And certainly fair pay is is a major factor in retention. Any words of advice or words of caution really before we wrap up?
Karen DiGioia: Well, I'm going to go back to Yogi Bear again as he had so many great quotes but one of them, you've got to be careful if you don't know where you're going because you might not get there. Words of wisdom, you know, very much buried in what sounds like confusion. But if you don't know where you're going when it comes to compensation, if your organization doesn't know where it's going, whether it's from a compliance perspective, whether it's competitiveness, whether it's pay equity, you're not going to get there. Compensation that is not the place where organizations should be winging it. I do recommend that organizations look for a partner to assist you with FLSA compliance prep, market compensation analysis, pay equity analysis, or anything else. In the ever-changing world of H.R., it's tough to go it alone. So, have someone in your court to assist you. We talked about before just assessing jobs against the current duties tests, and it is not a black-and-white process. So good to have someone assisting you through that.
Amy Klatt: Absolutely. Thanks so much, Karen. This this has been really valuable insight and definitely is giving our listeners a sense of where to begin as they start to navigate this proposed regulation. There were some other proposed regulations from federal agencies. Where can employers and H.R. personnel go to hear the latest on those?
Karen DiGioia: Here are the places that I go for information on especially compliance issue would be SHRM, BLR. I also, again, encourage H.R. departments and more broadly company leadership to leverage their trusted advisers when it comes to H.R. matters. Ask questions and keep communication open. There's a lot of uncertainty when it comes to any proposed rule or regulation change. Certainly now, as we talk about 2016, we think we know where things are going, but we never know exactly where where they're going to end up. Nothing's guaranteed. So stay on top of the latest developments by talking to your advisors is really a key.
Amy Klatt: Karen, thanks again for joining us today on an episode of Herbein Conversation. I'm sure that our listeners have gained a wealth of knowledge on this crucial topic. And thanks to our audience for listening in. We hope to be your go to source for thought leadership as we continue to explore trending topics with experts across various industries. To learn more about all things H.R. and the impact on your business, you can visit us at herbein.com and check out our HR Consulting Services page. Until next time.