The MACPA and other professional associations recently filed comment letters objecting to an onerous proposal released by the U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees (the proposal), which proposes a significant increase in the salary threshold below which employees are deemed “non-exempt” and entitled to overtime pay.

The proposal would amend the provisions of the Fair Labor Standards Act applicable to Executive, Administrative and Professional (EAP) employees by increasing the current salary level test from $455 a week ($23,660 per year) to increase it to the 40th percentile of weekly salaried workers, a level of approximately $50,000 per year. Additionally, the DOL proposes automatic increases to the salary level test, as well as more onerous tracking of duties, and an increase in the threshold level for a “highly compensated employee,” which would sweep additional employees into the overtime category, who fall below the new (higher) level. 

“This proposal will affect every employer in every industry and sector,” MACPA CEO and Executive Director Tom Hood said in the association’s comment letter. Although “most of our members agree that the current salary level test … is low by current standards,” Hood noted that the proposed solution – a 113 percent increase over the current salary test – “is far too high and unreasonable.” The immediate effects and ongoing effects with the proposed automatic increases could negatively impact both employers and employees. 

“Many startups, non-profits and seasonal businesses are already operating on small margins and lack budget flexibility for increased wages,” Hood noted. The MACPA says other costs associated with the proposal have been underestimated by the DOL, including the additional administrative and legal burden and cost of compliance. 

The MACPA points out that the proposal’s goal of increasing worker income and livelihood could be offset by employers reducing other aspects of employee salary and benefits packages, such as bonuses, health care, or 401(K) plans, due to the need to reallocate limited resources. 

Further, an increase in the number of employees who would need to be paid overtime can result in employers reducing hours for those employees, including restrictions on time spent in training and development, particularly if it requires travel time, which can result in lower morale and a less effective workforce, as pointed out in the AICPA’s comment letter. 

The AICPA’s letter, signed by AICPA President and CEO Barry Melancon, also notes that the proposed increased in salary level for highly compensated employees (HCE) from $100,000 to $122,148 would increase the compliance burden for a larger number of employees who already would qualify for exemption. Furthermore, the AICPA opposes changes to the “duties” test, including any adoption of the approach taken in California, which has resulted in costly litigation.

Additionally, the AICPA points out that modern compensation practices sometimes have increased emphasis on the bonus portion of total compensation, and that there should be no cap on the amount of bonus payments in meeting the salary threshold.

Separately, the AICPA argues against imposing any 50 percent test as to minimum amount of time spent by executive employees performing their primary duty, as the administrative and compliance burden of such a test would outweigh any potential benefit.

“The proposed revisions fail to modernize or streamline the regulations, fail to reflect the realities of the modern workplace and a changing workforce, and adversely affect both employees and employers,” concludes Melancon.

Many members of the Society of Human Resource Management submitted comment letters to the DOL opposing the proposal. Among those comments were the notions that the proposal:

• “will have a significant impact on the labor costs for my organization and will decrease workplace flexibility options for my employees”;
• “(raises) concer(ns) how the increase to the salary threshold will impact those of our locations in lower cost of living areas in the country”;
• “does not explain what the Department of Labor is planning with regard to the duties test”;
• “(if a California-style duties test is imposed) will be overly burdensome to track and is unworkable in many workplaces today where otherwise exempt employees must also conduct nonexempt activities”; and
• “because the salary level and the duties tests work together, it is impossible for me to discuss the impact of potential changes without knowing what the DOL might propose with regard to duties.”

Comments filed by the American Society of Association Executives points out how the DOL’s proposal could have negative impacts on small and non-profit employers and employees, potentially including layoffs and reduction of intangible benefits often offered to exempt workers, such as flex time or telecommuting, if those workers move into non-exempt categories under the raised-salary ceiling in the proposal.

“In short,” states the ASAE, “by setting a salary level that will categorically reclassify so many currently exempt employees as non-exempt, the Department is likely to adversely impact the work life and personal lives of many affected employees, without any guarantee that those employees will in fact earn higher incomes as a result of the proposed changes. To avoid these negative consequences, the Department should either set a lower salary level applicable to all employers or set the minimum salary level at a lower percentile of the national average for nonprofit and / or small employers. There is certainly precedent for exempting smaller employers from laws enacted to protect employees, where those laws could unduly burden the operations of the employer.”

The MACPA will continue to monitor the status of the DOL proposal.