December 13th, 2016
Employers nationwide find themselves in limbo over overtime pay.
A final rule issued in May by the Department of Labor (DOL) raised the Fair Labor Standards Act (FLSA) salary threshold at which employers would be required to pay workers overtime from $23,660 to $47,476. An estimated 4.2 million currently exempt employees would be eligible for overtime pay under the rule, which was scheduled to go into effect on Dec. 1.
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However, 21 states, as well as the U.S. Chamber of Commerce and over 50 other business groups, brought suits challenging the rule. The challenge states that the DOL exceeded its authority by more than doubling the overtime exemption threshold. Those suits were consolidated Oct. 19 by Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas. Mazzant then granted a preliminary injunction on Nov. 22 “[preserving] the status quo while the court determines the department’s authority to make the final rule as well as the final rule’s validity.”
So what does that mean?
In short, Mazzant’s order temporarily blocks implementation of the overtime rule pending further review; it could still be implemented later. The DOL has appealed for expedited review, but such a hearing, if granted, likely wouldn’t happen until early March at the soonest. Complicating matters, the incoming Trump administration’s DOL would have grounds to withdraw the appeal once it takes office.
In the interim, employers may continue to follow existing overtime regulations — but they should be aware that the increased overtime threshold could be instituted if legal rulings preserve the final rule and its implementation. If upheld, the rule also includes automatic increases in exempt employees’ minimum salaries every three years.
Many companies have already raised exempt employee’s salaries to meet the new threshold to keep them exempt from overtime, according to the Society for Human Resource Management (SHRM). Alternatively, some have reclassified — from exempt to nonexempt — those employees who are earning less than the threshold.
In the former case, employers should leave raises in place because they would be difficult to take back, SHRM explains. “Employers should proceed with extreme caution if they reverse any pay increases already implemented,” according to attorney Alfred Robinson Jr., former acting administrator of DOL’s Wage and Hour Division. “Such action may be poorly received or viewed, especially this time of year … and face state law complications in many states.”
In the latter situation, if employers haven’t reclassified workers yet, they should consider waiting to see how the litigation plays out. In such a case, Robinson adds, workers should be informed of the rule’s status and that the company “will reconsider any changes once there is a clearer picture.”
Joyce Maroney, Director of The Workforce Institute at Kronos, raises another potential issue. According to a survey conducted after DOL’s announcement of the regulations, 39 percent of salaried employees said that they are not required to track and report their work hours. Even those who do record their hours may not be doing so as precisely as hourly employees.
“That would [be] problematic for businesses if the new rule became law,” notes Maroney. “If they don’t require employees to precisely track and report their time, they could [be] on the hook for huge compliance liabilities in the event they were not paying people fully for their time.”
Labor lawyers predict the return of firmer work schedules for employees who are still being paid below the overtime threshold, she adds. The combination of rigid schedules and new time-tracking requirements could be stressful for employees who need flexibility in their workday.
In any event, companies shouldn’t assume that the overtime rule will be permanently stripped, advises SHRM. They should have a plan for moving forward. A checklist for compliance should include:
In the meantime, HR departments should stand ready to answer questions from employees and managers, and be transparent about further changes in the overtime rule’s status, supported by explanatory written communications.
“A key way to keep communications open is to make it clear that the changes are being made to stick to the letter of the law,” notes HR Dive.
To prime your business for FLSA changes, it’s important to have the right HR pros in place. To optimize your workforce, check out this infographic!