RILA objectes DOL’s proposal to change workforce classification regulations

Proposed Rule Undermines Important Employee Benefits And Creates Enormous Burdens For Employers

Arlington, VA, 2015-9-8 — /EPR Retail News/ — ​In comments submitted today to the U.S. Department of Labor (DOL), the Retail Industry Leaders Association (RILA) strenuously objected to the proposal to change workforce classification regulations. Specifically, the proposal would change the rules by which employees are designated eligible for overtime, more than doubling the current salary level threshold for non-exempt employees and leaving the door open to establishing a rigid test for evaluating the primary duties of an employee.

“The dramatic changes proposed by the Department of Labor could undermine many of the things that retail employees value about their work, including flexibility, training and upward-mobility,” said Jennifer Safavian, executive vice president for government affairs.“Further, by undercutting employees’ ability to always prioritize serving customers, the rule could negatively impact the shopping experience. We believe that the proposal fails to recognize the realities of the modern workplace and we urge the Secretary of Labor to carefully consider the input provided by the business community.”

RILA’s comments were submitted by outside counsel, Jason Schwartz of Gibson Dunn & Crutcher LLP.

“RILA agrees with the President that certain aspects of the white collar exemptions “have not kept up with our modern economy” and should be “modernize[d] and streamline[d].” Nonetheless, RILA does not agree that, that the proposed rule will either “modernize” or “streamline” the application of the exemptions,” said RILA in its comments to DOL. 

“The proposed rule would set the threshold salary above that earned by many bona fide exempt retail managers and would set in motion a self-perpetuating ladder of increases that bear no reasonable connection to exempt status or prevailing market conditions.  In addition, the changes to the duties tests that the Secretary is considering—but has not yet proposed—would embed outdated and inflexible concepts in the rules and foster confusion for employers and employees alike, leading to increased cost, burden and litigation without any meaningful benefit.”

In the comments filed today, RILA raised six substantial issues of concern:

  1. A rigid duties test would run counter to the realities of the modern workplace.
  2. Any change to the primary duties test must require a public comment period.
  3. The more than doubling of the salary threshold unfairly impacts the retail industry and employers located outside of major urban areas, where a substantially lower cost of living affects compensation.
  4. The proposed process for annual updates to the salary threshold would create unreasonable burdens without adequate justifications.
  5. Non-discretionary bonuses are an important component of salary and should be included in the salary threshold calculation.
  6. Sufficient implementation time should be provided.

Important Excerpts from RILA’s Comments to DOL:

On Minimum Duties Test

“The current regulations further reflect the reality of the modern workplace by acknowledging that employees can and often do multitask.  Ignoring this basic truth will simply create a regulatory regime out of touch with what actually happens every day on the job.”

“The current regulations provide that flexibility, within reasonable parameters, and should be retained as is.  A more rigid approach would handcuff businesses and force them to manage their exempt personnel by using a stop watch, rather than empowering these employees to achieve objectives within their responsibility and use their time as they see necessary to meet the needs of their operations.”

“…if the Department does believe that changes to the primary duties test are warranted at the conclusion of the instant rulemaking, specific proposals would need to be released to the public for with adequate notice and a reasonable opportunity to comment before adoption or else, as a matter of law, the Final Rule would be vacated for failure to comply with the Administrative Procedure Act (“APA”) and other legal obligations.”

Salary Threshold

“RILA agrees with the Secretary that the current minimum salary level for exemption, $455 per week ($23,660 per year), may no longer serve as a reliable indicator of exempt status and needs to be updated.  RILA disagrees, however, that the proposed increase to $970 per week ($50,440 per year), is a well-reasoned, rational substitute.”

Annual Salary Threshold Updates

“…the Secretary states that salary threshold updating should occur annually but that it would be impractical for the Department to conduct rulemaking every year.  Just as annual rulemaking would unduly burden the Secretary, annual updates to the salary minimum would unduly burden employers.  Such frequent changes to the salary level required for exemption would occupy substantial employer time and resources simply to keep up.  Instead of focusing on the annual performance evaluation and compensation planning process, which often begins months in advance of implementation, employers would instead be engaged in a mad rush to catch the moving train of salary level increases each year.  This would distort the proper functioning of compensation systems, forcing them to focus on whatever pronouncement the Secretary makes instead of tying compensation to market factors and performance.  Compression of salaries between the first level of exempt employees and the next tier will further interfere with the proper functioning of merit-based compensation systems.”

Inclusion of Non-Discretionary Bonus in Salary Calculation

“RILA notes two issues, however, with the Secretary’s suggested approach.  First, in the retail sector, bonuses are usually paid on a quarterly, semi-annual, or even annual basis due to the need to calculate the financial performance, customer service metrics, or other factors on which they are based.  Allowing credit only for those bonuses paid on a monthly basis would prevent many in the retail sector (and possibly other industries) from utilizing non-discretionary bonuses to satisfy the threshold salary level.  Second, for exempt employees, these bonuses often range from 10% to 20% or more of base salary.  RILA therefore urges the Secretary to permit credit toward up to 20% of the salary threshold test.”

Implementation Period

“Significant changes to the white collar exemption criteria such as those proposed here require substantial advance planning to implement throughout a workforce.  Whether employers react to the salary level increase by raising salaries, reclassifying employees as non-exempt, or some combination of those approaches, substantial time will be required to assess current positions, determine appropriate steps, plan, budget, and implement them.  RILA suggests that the Secretary recognize this business reality by making the regulations effective six months from the publication of a Final Rule in the Federal Register, and including an additional six month enforcement grace period during which the Secretary would focus on compliance assistance efforts.”

A link to the full comment letter can be found here.

RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.

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Brian Dodge
Executive Vice President, Communications and Strategic Initiatives
Phone: 703-600-2017
Email: brian.dodge@rila.org