Bright-Line Overtime Test a Possibility, US Labor Secretary Tells SHRM

Author: Michael Cardman, XpertHR Legal Editor

March 19, 2014

As he prepares to overhaul the federal overtime rules, the head of the US Department of Labor (DOL) will consider establishing a more black-and-white test for determining who is exempt and who is not.

"Some states have brighter-line rules," Labor Secretary Thomas Perez told attendees of the Society for Human Resource Management's 2014 Employment Law and Legislative Conference in Washington, D.C., on March 18. He said the DOL will "study" whether such rules are a "good idea" at the federal level as well.

Currently, employees must have exempt work be their primary duty to qualify for most exemptions from the overtime requirements of the Fair Labor Standards (FLSA).

Over the years, a body of regulations and case law has interpreted how primary duty should be applied to real-life employees. Under these interpretations, an employer does not need to pay overtime to employees who spend a majority of their time performing nonexempt duties (e.g., taking inventory or manning a cash register) as long as they are free from direct supervision and their exempt duties (e.g., supervising subordinates) are a more important part of their job.

"This test is not exactly a model of clarity," Perez said.

He claimed it also conflicts with the Obama administration's belief that "if you have to work more, you should be paid more." He noted one prominent ruling in which "people spending 1 percent of their time on management and 99 percent of their time stocking shelves are nonetheless exempt managers" under the test as it currently stands.

As Perez noted, some states require that employees spend a certain percentage of their time performing exempt work, regardless of how important those duties may be. For example, California requires that overtime-exempt employees spend at least 50 percent of their time performing exempt work.

The primary duty test can be a double-edged sword for HR professionals. On the one hand, the ambiguity of the term can make it hard to classify employees as exempt with confidence. On the other hand, it frees HR from the considerable administrative burden of ensuring that exempt employees actually spend a certain amount of their time performing exempt work.

Although the DOL is "just at the starting line" for the rulemaking process, employers should prepare for the possibility of a bright-line test like California's.

The new rules will be "notice-and-comment" regulations, meaning HR professionals will have the opportunity to formally weigh in with their preferences once the DOL proposes draft regulations.