The Most Important Proposal of the Year
The most important proposal of the year has nothing to do with Risk-Based Capital or Field of Membership. It has nothing to do with overdraft fees or payday loans. In fact, it hasn’t even been released yet for comment. Nevertheless, your fearless blogger is going to go out on a limb and tell you that the most important regulatory proposal you will be confronted with this year is one that is expected to be issued by the Department of Labor this summer.
What I am referring to is the release of regulations redefining what constitutes an exempt or non-exempt employee under the federal Fair Labor Standards Act (FLSA). At the very least the regulations could impact the operation of your credit union; in a worst case scenario it will be another one of those unfunded government mandates.
Under the FLSA, employees are entitled to a minimum wage and to at least time and one-half overtime pay for every hour they work over 40 hours per week. As many of you are aware, however, so-called exempt employees are not entitled to overtime. As a gross over-simplification, an exempt employee is generally defined as someone whose duties involve supervising or exercising independent judgment.
In March of last year, President Obama directed the Department of Labor to scrutinize the existing DOL regulation. To give you a sense of where this is headed, a fact sheet that accompanied the President’s directive argued that “the overtime rules that established a 40-hour work week, a lynchpin of the middle class, have eroded over the years. As a result, millions of American workers have been left without the protections of overtime” even though they are expected to work 50-60 hours a week.
One way the DOL is expected to attack this perceived problem is to restrict the so-called primary duty test, which could have a profound impact on many smaller credit unions. For example, let’s say you have a four person branch. Your manager’s primary duty is to manage the entire branch. But, on any given week, he may spend a good deal of his time pitching in at the teller window or helping out originating mortgage loans. Under the existing regulations, you still can treat that manager as an exempt employee, but it is quite possible that the DOL will seek to limit the exempt designation solely to managers who spend the majority of their time taking on purely supervisory tasks. You may want to take a look at 29 CFR 541.106.
Technology can also influence the DOL’s proposal. A recent article in the Wall Street Journal reports an increase in lawsuits in which employees are suing employers who provide them cell phones with the expectation that they perform uncompensated work outside the work day. This is an issue I have always found intriguing. It’s one thing to send your top managers an email at 6:00 a.m., it’s another to send that same email to all of your employees irrespective of their work status.
These are just two examples of how the DOL’s regulation could impact your credit union. Regulations haven’t even been proposed yet, so we are a long way from seeing any of my worst case scenarios become realities. Nevertheless, given the potential scope of the proposal, you should all be keeping an eye out for the DOL regulations once published. It could have a uniquely negative impact on small businesses like credit unions.