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Some of the ramifications of the DOL’s proposed labor law changes are evident
T
he Obama administration has proposed yet another rule that could negatively impact our counties across the state. The U.S. Department of Labor (DOL) currently has a pending rule change to update and revise the regulations issued under the Fair Labor Standards Act (FLSA). This would alter the way employers implement the “white-collar” exemption to minimum wage and overtime pay for executive, administrative and professional employees. The last time this rule was changed was in 2004 when the minimum pay requirement was increased from $8,060 per year to the current figure of $23,600 per year. Currently the “white-collar” exemption under the FLSA is determined by using three tests. The first is the “Salary Level Test,” which is a simple test revealing that any employee being paid on a salary or fee basis of at least $455 a week (the equivalent of $23,660 annually) qualifies. The second is the “Salary Basis Test,” which requires the employer to pay the employee a predetermined amount of compensation each pay period. The compensation cannot be reduced because of variations in the quality or quantity of the work performed. Improper deductions include partial-day absence such as the employer was closed due to a holiday or the employee had jury duty. Some deductions are allowed and still qualify under the salary basis test. These include an absence from work for one or more full days for personal reasons, other than sickness or disability. The final test is the “Job Duties Test.” The definition of this is broader and not as cumbersome. If the employee’s primary duty is management of a department or a subdivision, then that will satisfy this test. Another duty that qualifies is if the employee has the authority to hire or fire other employees and or make recommendations as to hiring or firing. The employee must meet all three of the tests to be qualified for the “white-collar” exemption. The key component to DOL’s proposed rule is to increase the salary basis test, which sits at $455 per week. The administration would like to see that amount raised to $921 a week. The goal of the White House is to set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers across America. While California may be able to accommodate this increased number, Arkansas may fall short. What does this proposed mandate mean for counties with exempt employees making less than $921 a week? If this rule is implemented, counties will be faced with two options. Employers could do nothing, and this new rule would require them to begin paying their currently exempt employees overtime. If employees do not work overtime and are currently exempt, bud-
Governmental Affairs
gets would not be impacted. Nevertheless, these employees may decide they need to start working overtime to make some extra spending money. A county could combat this with a policy that states, “The county will not pay overtime to an employee in said position.” The other option counties would have is to raise the Josh Curtis salaries of exempt employees to the Governmental Affairs new minimum amount. This may be Director less harmful financially and could be a reasonable solution. Counties will have to analyze their situation and make calculations for each current exempt position. One other component to the proposed rule is uncertain — an automatic annual adjustment. This would allow an annual adjustment to the overtime pay threshold. This change would create uncertainty for county governments and would place an undue administrative and monetary burden on county governments. It would become difficult to plan for and implement salary increases due to these annual undefined overtime pay changes. Counties are not like the federal government; they do not print their own money. Arkansas has a balanced budget amendment, and counties can appropriate only 90 percent of their anticipated revenue, which is much more stringent than operating under a balanced budget. In a time when county revenues are stagnant, everyone is looking for ways to cut costs. The proposed rule mandate will not help this endeavor and most likely will cause counties to increase their overtime budgets with no new revenue. The employees are not immune to the negative impacts of this proposed rule. The overtime salary change would reduce the number of exempt employees and change their classifications. The change from exempt to nonexempt status could reduce the county employees’ fringe benefits and incentive compensation. Additionally, positions could be cut and replaced with part-time employees. This is one scenario that is being discussed among those in the business community. The Association of Arkansas Counties pays dues for every county in the state to be a member of the National Association of Counties (NACo). AAC staff has been working with NACo to express their concerns with this proposed rule. NACo urged DOL in late August to extend the public comment period, which ended Sept. 4. It is unknown when DOL officials will make their final decision regarding this rule.
www.arcounties.org 16
COUNTY LINES, FALL 2015
