DES MOINES – Today, Governor Branstad joined a coalition of 21 states and governors in filing a federal court complaint challenging the United States Department of Labor’s new overtime rule. If implemented the new rule will more than double the minimum salary overtime threshold for public and private workers without Congressional authorization. The rule will force many state and local governments to substantially increase their employment costs and services, including educational costs for students and parents. Some governments may be forced to eliminate some services and even lay-off employees. The complaint urges the court to prevent the implementation of the new rule before it takes effect, which is scheduled for December 1, 2016.
“The proposed rule would add $19.1 million of additional costs on the State of Iowa government and our public universities in the first year – a burden that would be carried by Iowa’s hard working taxpayers, parents and students,” Branstad said in comments submitted on the draft rule. “Quite simply, the proposed rule would be an unfunded mandate upon states.”
On March 13, 2014, President Obama ordered the Department of Labor to revise the Fair Labor Standards Act’s overtime exemption for executive, administrative, and professional employees—the so-called “white collar” exemption—to account for the federal minimum wage. On May 23, 2016, the Department of Labor issued the final new overtime rule. It doubles the salary-level threshold for employees to be exempt from overtime, regardless of whether they perform executive, administrative, or professional duties. After December 1, 2016, all employees are entitled to overtime if they earn less than $913 a week—including state and local government employees. Additionally, the new rule contains a ratcheting mechanism to automatically increase the salary-level every three years without going through the standard rule-making process required by federal law. Unfortunately, the U.S. Department of Labor did not significantly address the State of Iowa’s concerns in the final rule and significant concerns remain about the rule’s impact on Iowa taxpayers and our institutions of higher education.
In addition to Iowa, other states and governors who joined this filing include: Alabama, Arizona, Arkansas, Georgia, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah and Wisconsin.
On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.
In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. Consistent with the President’s goal of ensuring workers are paid a fair day’s pay for a hard day’s work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.
Key Provisions of the Final Rule
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
- Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.