New Proposed Overtime Regulations: Part II

        2.   Duties Test

Perhaps the most eagerly anticipated regulations were centered on the changes that the DOL would seek to make to the duties test for EAPs.  Given that wage-hour litigation has increased nearly six-fold since 2004 when the current regulations were issued, there has been an expectation that the DOL would add needed clarification to the duties test, and in particular what a “primary duty” is.  Commonly, for example, managers in many industries will perform non-managerial work (e.g. stocking shelves, working cash registers, taking orders from customers).  Often such work when measured by the amount of time spent performing it exceeds 50% of the manager’s time.  Generally that is allowable under the current regulations where the manager’s primary duty is still scheduling, disciplining, hiring and firing and other executive exempt tasks.  Prior to 2004 the percentage allocation was addressed between the long and short duties tests, where employers had to pay a higher salary to exempt employees who performed fewer exempt duties and a lower salary to employees who performed more.  The 2004 regulations did away with this bifurcation, but not the underlying problem, which the DOL admitted to in these new proposed regulations.

Frustratingly, the proposed regulations fail to provide guidance from the DOL on their intent concerning the duties test.  The proposed regulations discuss California’s wage and hour law, which requires that EAP employees spend at least 50% of their time performing their primary duty, not counting time during which nonexempt work is performed concurrently.  The DOL has stated that it does not foresee the need to return to the days of the long and short duties tests, but they are questioning seriously whether the current definition of primary duty is adequate.  Personally, it seems from their discussion in the regulations that the DOL is already leaning toward adopting the California method, though according to the regulations they are still thinking about the matter and have yet to decide.  Through this process the DOL is asking business and employee groups to respond to the following questions:

What, if any, changes should be made to the duties tests?

  • Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for the exemption?  If so, what should that minimum amount be?
  • Should the Department look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model?  Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?
  • Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?
  • Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption?  Alternatively, should there by a limitation on the amount of nonexempt work?  To what extent are exempt lower-level executive employees performing nonexempt work?

In summary there are many changes yet to be determined by the DOL with regard to federal overtime regulations.  The salary basis changes proposed are significant and will adversely impact retailers, small businesses and hospitality primarily.  The duties test could be even more adversely impactful on these same industries depending on their decision to change or allow the current duties test to remain.  The latter is unlikely, but we will not likely have full knowledge of the impact of these proposals until last 2015, if the DOL’s timeline for implementation of these regulations is to be believed.

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