On May 23, 2016, the Department of Labor (DOL) published the final rule colloquially termed the “Overtime Rule” as part of the Fair Labor Standards Act (FLSA). The new rule raises the salary threshold for overtime exempt workers to $47,476 per year, requiring salaried employees paid less than this amount to be paid for overtime work regardless of their work classification. The new rule raised the threshold from $23,660 per year, broadening the scope of salaried employees entitled to overtime pay by 4.2 million workers.
This rule requires employers to either pay qualifying employees time-and-a half for overtime work, raise worker’s salary above the new threshold, limit worker’s hours to 40 hours per week, or to use some combination of these tactics. Additionally, employers may essentially circumvent the new rule by reducing the amount of the employee’s base salary and adding pay to account for overtime hours worked over 40 hours in the workweek, virtually keeping the employee’s weekly pay unchanged. Clearly this new rule will have an impact on tribal businesses (as well as others).
Following the initial June 2015 rule proposal and the subsequent notice-and-comment period, several tribes and tribal organizations submitted comments voicing concern over a lack of representation and consultation in the rulemaking process. Tribal comments vary from concerns over the rule’s disparate impact on rural areas where tribes operate and wages tend to be lower, to the substantial impact on tribal-funded governmental services, such as privately-funded law enforcement and health programs, among other vital services provided to members. By passing on more costs to the tribal employer, funds normally allocated to these governmental services may be diminished, and unlike a state which can simply raise more tax revenue, tribes cannot recoup the losses without making sacrifices in these or other areas.
Some tribes feel slighted because of the clear Tribal governmental implications from the new rule and the DOL’s inadequate consultation on a rule with such a substantial and direct effect on Tribal Government. Executive Order 13175 (2000, reaffirmed by every Executive administration since), directs each agency to have an accountable process to ensure meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications. “Policies that have tribal implications” refers to regulations that have substantial direct effects on one or more Indian tribes. Before promulgating any regulation that has tribal implications that will impose substantial direct compliance costs on Indian tribal governments, the agency must consult with tribal officials early in the process of developing the proposed regulation. The DOL must also prepare a tribal summary impact statement that details the extent of tribal consultation, a summary of both agency and tribal concerns, and the extent to which the concerns are being met.
In this final rule, the DOL said that it had conducted listening sessions that included tribal governments, and determined that the rule did not have tribal implications, and thus a tribal impact statement was unnecessary. However, many tribes feel that tribal consultation was wrongfully absent or at least deficient, as a direct effect on many tribes is overwhelmingly present. Regardless, the DOL has pushed forward in this final ruling, set to take effect on December 1, 2016.
As a tribal employer, are you complying with the new wage and hour laws? Assuming the FLSA applies to your business (stay tuned for a future blog post outlining the debate of the FLSA’s application in Indian Country), the major change is the salary threshold increase for overtime exempt workers to include those making less than $47,476 per year. To qualify as an overtime exempt worker, which is often referred to as the white collar exemption, an employee must be:
- “salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
- be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
- primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Additionally, certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees who earn above a higher total annual compensation level ($134,004 under this Final Rule) and satisfy a minimal duties test” (see FAQ here). Because the DOL explicitly notes that job title does not determine exempt status, a prudent employer should take a look at the Department regulations (here; note that the salary rates have not been updated to reflect the final rule) for the “duties test” definition of specific exempt jobs to ensure that employees are not misclassified as overtime-exempt when they are in fact still non-exempt.
In short, tribal businesses have six months before the final rule takes effect. Until then, Tribal Governments will continue to voice their dissatisfaction with the DOL’s inadequate consultation on the rule’s implementation in Indian Country. The new rule will undoubtedly increase economic strain on tribal businesses, and if this leads to massive reductions in funding for tribal governmental services, we may see litigation challenging the general applicability of the FLSA to Tribal Governments.
Kele Bigknife is a citizen of the Cherokee Nation and is entering his third year at the University of Michigan Law School. He is a member of the Editorial Board for the Michigan Business and Entrepreneurial Law Review. Kele is a recipient of the 2016 Procopio Native American Internship.
Ted is head of the Native American Law practice group and primary editor for the Blogging Circle. Connect with him at email@example.com and 619.515.3277.