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Pending and potential updates to Fair Labor Standards Act (FLSA)

July 13, 2018

By Michael Burns, courtesy of SBAM Approved Partner ASE

Employers can expect some changes to the FLSA as the Trump administration’s Department of Labor (DOL) looks to make its mark on this now 80-year old law.  Some of the prospective changes that appear most imminent are:

Exempt Classifications Salary Level Test – The previous administration in Washington attempted a “Hail Mary” change to the FLSA’s Salary Level Test for exemption status by almost doubling the salary level for the Executive, Professional, and Administrative exemptions. Taking it from $455/week to $913/week. This would have substantially reduced the number of workers that could be classified exempt, particularly in certain industries such as hospitality. A federal court enjoined implementation of that regulatory change as regulatory overreach. The DOL will be publishing revised regulations early this winter (2019).

Other components of the FLSA exemption regulations that are out of date is the Outside Salesmen exemption that harks back to the days of the Fuller Brush door to door salesmen. This position is defined by Wage and Hour regulations as one that is “customarily and regularly engaged away” from their employer’s business.

The worker “in a retail or service establishment” who earns 1.5 times the minimum wage and gets at least half their income from minimum wage does not account for the modern retail landscape.

A third area of Wage and Hour regulation that was implemented just over 20 years ago, but is arguably be coming out of date, is the terms of the computer professional exemption. The technology sector has changed and continues to change, but the 1996 regulations remained unchanged.

Independent Contractor Status – Who should be an employee and who is a bona fide independent contractor is not only being looked at by the Department of Labor’s Wage and Hour Division but also by other government agencies such as the IRS and is often reviewed by federal and state courts using different standards/tests. Though this issue is often framed as one about fair pay for work, it is more about the payment and collection of tax dollars. It is always easier to get an employer to pay worker taxes than a group of small independent contractors moving around and taking various jobs at various locations from various businesses or individuals. Regardless, the “Gig” economy is a growing market force and government agencies have to find a way to manage this element of our economy. The previous administration implemented regulations that curtailed independent contractor status. However, the Trump administration has not truly weighed in with its plan to address this situation.

Federal Minimum Wage remains at $7.25/hr. Individual States have taken the lead and raised minimum wages, including Michigan which is now at $9.25/hour. Michigan’s minimum wage is now indexed to the cost of living rate going forward in 2019. Some argue that allowing states to manage their minimum wage in accordance with local market conditions makes sense due to significant differences in income geographically. Think California versus Mississippi.  

But the federal minimum wage impacts certain jobs regardless of state law in some instances.  Deductions from pay under the FLSA allow employers to deduct costs such as uniform cleaning, gas, and equipment purchases from workers as long as they do not take worker pay below the federal minimum wage. Which is arguably pretty low when subject to such deductions. 

If the Republicans maintain their control over the U.S. Congress, employers should try to use that majority to address some of these situations before a re-balancing occurs and congress reverts to split Democrat and Republican led houses. It would be very tough to get anything pro-employer passed from that point on.

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