Service Contractors Beware: Changes To FLSA “Salary Exempt” Status Coming (Yet Again)

by Rachel Thomas

  • Government Contracting

Almost exactly four years ago, Centre issued a blog post regarding the status of the Obama Administration’s effort to revise the standards for determining whether an employee may be “exempt” for purposes of entitlement to overtime under the Fair Labor Standards Act (FLSA). Ultimately, the Obama DOL issued regulations that would have more than doubled the FLSA’s minimum salary requirement from $23,660 to $47,476 per year – affecting the status of an estimated 4.2 million workers.

While it potentially would’ve impacted all employers, the particular import for government contractors is that FLSA exempt status also defines the contours of which workers are “service employees” for purposes of coverage under the Service Contract Labor Standards. That is, under the previously proposed regs, any employee working on a federal service contract and earning less than $46,476 would have been a “service employee” and entitled to be slotted within a wage determination and receive applicable vacation and fringe benefits.

Of course, those who remember our blog post of December 2016 will recall that ultimately the regulations were blocked by a federal court injunction. Early in the Trump Administration, the DOL indicated that it would not dispute the Court’s injunction but that the agency would revisit the issue of exempt status at a later time. And, it appears that later time is now as, on March 22, 2019, the DOL issued its Notice of Proposed Rule Making to revise the regulations concerning exempt status. The public comment period for the same will close on May 21, 2019.

While the changes proposed are not as considerable great as the prior administration’s, they are significant. For example, the proposed minimum salary threshold is $35,308 – nearly a 50% increase over the current standard. Similarly, the threshold for exemption for highly compensated individuals is proposed to increase from the current standard of $100,000 to $147,414. Perhaps most importantly, unlike the enjoined regulations, the new regs do not include an automatic “update” provision, that would have ratcheted the salary level up without the need of further agency action in the future. In addition, the new regs also do not propose any modification to the existing “duties test” to determine workers’ exempt status.

Say what one will about the current occupant of The White House, the Trump Administration is certainly an “interesting one.” Despite some early fireworks around the possibility of Andrew Puzder taking the reins at DOL, the agency’s direction under the leadership of Alexander Acosta has generally been middle of the road, and the recent FLSA proposal is consistent with that theme.

It’s anticipated that the current proposal will move far more quickly than its predecessor and, once finalized, will likely not face the same level of court challenge. Contractors should continue to monitor the progress of the regulations as it appears that change is on the way again. And this time, it is probably here to stay.