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WHD Issues Final Rule on Qualifying as a “Retail or Service” Establishment

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On May 18, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) announced a final rule to provide one analysis for all employers when determining whether they qualify as “retail or service” establishments for purposes of an exemption from overtime pay applicable to commission-based employees.

Section 7(i) of the Fair Labor Standards Act (FLSA) provides an exemption from the FLSA’s overtime pay requirement for certain employees of retail or service establishments paid primarily on a commission basis. Today’s rule withdraws two provisions from WHD’s regulations. The first withdrawn provision listed industries that WHD viewed as having “no retail concept” and thus were categorically ineligible to claim the section 7(i) exemption. The second withdrawn provision listed industries that, in WHD’s view, “may be recognized as retail” and thus were potentially eligible for the exemption. As the rule explains, some courts have questioned whether these lists lack any rational basis.

As a result of the withdrawal of these two lists, establishments in industries that had been on the non-retail list may now assert that they have a retail concept, and if they meet the existing definition of retail and other criteria, may qualify to use the exemption. These other criteria include paying a regular rate at least one and a half times the minimum wage and providing commissions that comprise more than half the employee’s compensation for a representative period. Some establishments on the withdrawn non-retail list may have been deterred from availing themselves of the exemption and its compensation flexibilities. If establishments on the withdrawn non-retail list now qualify for the exemption, they have added flexibility regarding commission-based pay arrangements with their workers. For these employers and workers, they could consider whether, for instance, more commission-based pay is sensible.

Establishments in industries that had been on the “may be” retail list may continue to assert that they have a retail concept. Moving forward, WHD will apply the same analysis to all establishments to determine whether they have a retail concept and qualify as retail or service establishments, promoting greater clarity for employers and workers alike.

WHD is issuing this rule without notice and comment, and it will take effect immediately. Notice and comment and delaying the effective date are not required because both lists being withdrawn were part of WHD’s interpretive regulations and were originally issued in 1961 without notice and comment or a delay.

 

 

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More DOL Opinion Letters Issued

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The U.S. Department of Labor, Wage and Hour Division (WHD) announced that it issued two new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA).  As a review, an opinion letter is an official, written opinion by the Department’s Wage and Hour Division (WHD) on how a particular law applies in specific circumstances presented by the person or entity that requested the letter. The opinion letters issued are:

  • FLSA2020-1: Addressing calculating overtime pay for a non-discretionary lump sum bonus paid at the end of a multi-week training period.
    • The background: the employer informs its employees in advance that they will be eligible to receive a lump sum bonus of $3,000 if they successfully complete ten weeks of training and agree to continue training for an additional eight weeks. You acknowledge that the bonus is nondiscretionary. The employee does not have to complete the additional eight weeks of training, however, to retain the lump sum bonus.
    • The opinion: As an initial matter, the lump sum bonus paid to your client’s employees must be included in the regular rate of pay as it is an inducement for employees to complete the ten-week training period. Because the employer pays the lump sum bonus to employees for completing the ten-week training and agreeing to additional training without having to finish the additional training, the lump sum bonus amount must be allocated to the initial ten-week training period. Based on the facts provided, it is appropriate for the employer to allocate the lump sum bonus of $3,000 equally to each week of the ten-week training period. Each week of the ten weeks counts equally in fulfilling the criteria for receiving the lump sum bonus, as missing any week (regardless of whether the employee worked overtime in that week) disqualifies the employee from receiving the lump sum bonus.
  • FLSA2020-2: Addressing whether per-project payments satisfy the salary basis test for exemption.
    • The background: the company employs educational consultants to provide services to schools and school districts throughout the country. These educational consultants are assigned to projects lasting various periods of time. The Department of Labor assumed that educational consultants meet the duties tests of the administrative or professional exemptions. The company will determine educational consultants’ compensation on a per-project basis regardless of the amount of time required to complete the project. The company will make payments for the project in “equal pre-determined installments” biweekly or monthly. The company provided two examples with the opinion request.
      • Example 1: for developing a new literacy curriculum, the educational consultant will receive a predetermined amount in 20 biweekly installments paid throughout the district’s academic year. That the amounts of these payments will not vary from week to week or month to month based on the number of hours worked by the consultant on the project and, for purposes here, the DOL presumed they will not vary based on the quality of the work performed. As a result, this payment structure satisfies the requirement that employees be paid a predetermined amount constituting all or part of the employee’s compensation” paid weekly or less frequently, provided the payments are not subject to reduction because of variations in the quality or quantity of work performed.
      • Example 2: the same educational consultant in example 1, is assigned to a second eight-week assignment (Project Two) while continuing to work on the original assignment. For completing the second project, in addition to payments received for work on the first project, the consultant will be paid $6,000 in four $1,500 biweekly installments, for a total of $5,500 per pay period during the eight weeks in which the projects overlap. The employer’s payments for the second project also satisfy the requirements as “extra” compensation under the regulations.
    • The Opinion: Both examples met the requirements for payments under the salary basis rule.

Paying Extra to Exempt Employees

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I always seem to get questions this time of year about paying overtime or “extra pay” to exempt employees.  Many departments or companies have this time of year as their busiest and want to make sure that exempt employees can earn extra monies during this time without endangering their exempt status or actually converting those employees to nonexempt.  I want to refer my followers to a great blog by Bill Pokorny of Franczek Radelet written for the Wage and Hour Insights blog that answers this exact question. I hope you find it useful.

Our Current White Paper: Professional Employee Exemption

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As we all know the Department of Labor (DOL) has been granted another 60 day extension concerning the new OT rules, namely the salary level test.   Will it be raised to $913 a week is still anyone’s guess. However, the other two tests that must be met for an employee to be exempt under the executive, administrative or professional categories…salary basis and job duties are still intact and must be followed. Our white paper this time discusses the job duties that must be met for an employee to be exempt under the professional category.  We hope you find it informative.

 

white paper exempt employee under professional category

 

 

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History Is On President Obama’s Side

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We all knew that when President Obama called for changes to the exempt rules under the FLSA and the Department of Labor began the process of implementing those changes that there would be challenges by Congress.  The “Overtime Reform and Enhancement Act” was introduced on Friday, July 15th. The bill requires the salary level changes be done in increments and does away with the automatic updates. But does Congress have history on their side to actually challenge the new rules?  If we look at history, the answer is no. History is on President Obama’s side, even for the automatic updates, which have been proposed in the past several times. Changes of the nature being done (raising the salary level) have always been under the purview of Presidents, their Secretaries of Labor and their Administrators for the Wage and Hour Division. They have however, been few and far between.  The first level was set at $30 per week in 1938 under President Franklin Roosevelt and his Administrator Elmer F. Andrews. It slowly raised up over the course of the years, often with professional and administrative employees being paid more. It was increased to $55/$75 per week in 1949 under President Truman and his Administrator William R. McComb; to $80/$95 per week in 1959 under President Eisenhower and his Administrator Clarence Lundquist; to $100 per week for executives and administrative, $115 per week for professional in 1963 under President Kennedy and his Administrator Clarence Lundquist.  In 1969 hearings were held again to increase the salary level.  This time they would increase to $125 per week for executive and administrative and $140 for professional employees beginning in early 1970 under President Johnson and his Administrator Robert D. Moran. During the hearings it was suggested by union leaders that there be a mechanism put in place to increase the salary level automatically to eliminate the lengthy periods which normally occur between revisions, thus keeping the salaries current and meaningful. But this was not incorporated. Amazingly enough there were only two changes to the salary level since 1970.  First under President Ford (begun under President Nixon) in 1975 and then again under President George W. Bush in 2004. Under Ford and Administrator Betty Southard Murphy they were raised to $155 per week for executive and administrative employees and $170 for professionals effective April 1975.  Again at this time Murphy pointed out that the thresholds had last been updated in 1970 and were increasingly out of date. She referenced that the Consumer Price Index may be utilized as the basis for updating the levels but did not include it in the final proposal. The salary level remained at those rates for the next 29 years.

The issue was not ignored by subsequent presidents it just never made it out of the regulatory agenda to fruition.  It was proposed in 1979 under President Carter but tabled in 1985 under President Reagan. Under President Clinton it was put forth with a target date of September, 1993 but no action was ever taken on it. It remained on the agenda but no timetable was ever set.  Then under President George W. Bush and his Administrator Tammy McCutchen,  a major overhaul of all the requirements for exempt employees, including the salary level tests, were implemented.  The salary level was raised to $455 per week for all exempt employees and a new category was added for the highly compensated.  This category had a salary level of $100,000 per year. It was during this last update that Congress actually attempted to block the new regulations.  Several amendments were added to various bills calling for defunding of the Department of Labor in an effort to stop the regulations from taking place. It was not the levels that were in dispute but the overall changes made to the jobs duties tests that caused the outcry from Congress.  It was felt that too many employees would lose overtime protection under the new regulations. Stand alone bills were introduced as well as hearings conducting in both the house and senate.  But in the end the regulations were implemented in April of 2004.  This was the final update to the salary level until the new rules scheduled to take effect on December 1, 2016.

So the new proposed legislation of the “Overtime Reform and Enhancement Act” which is attempting to delay the implementation of the new salary levels does not have history on its side. Congress normally does not and generally cannot interfere with this type of regulation.  But you never know in this day and age. We will just have to wait to see which side wins. But if history is any indicator, my money is on the DOL.