A federal judge in Texas plunged many an HR and payroll department into uncertainty when he issued a nationwide injunction blocking the Obama administration’s new overtime rule as part of the Fair Labor Standards Act (FLSA), which was scheduled to go into effect on Dec. 1.
A total of 21 states and a coalition of business groups had gone to court to challenge the rule, which would double the maximum salary threshold for workers to be eligible for overtime pay. Judge Amos Mazzant’s (U.S. District Court for the Eastern District of Texas) surprise decision blocks the new rules, which would have approximately doubled the salary threshold under which workers are required to be paid overtime. Now most companies are now in limbo pending further judicial review.
This regulatory change – which would require companies of all sizes to reclassify some workers from exempt to non-exempt as the current salary threshold of $23,660 would have been raised to $47,476 – had already been called into question with Donald Trump’s recent election and the GOP’s success in holding both the Senate and House. President-elect Trump had indicated he would seek to modify or rescind the new rules and, in general, Republican leaders in Congress have long talked about rolling back regulations on business.
According to a Reuters report, Mazzant – who was appointed by President Obama – ruled that the federal law governing overtime does not allow the Labor Department to decide which workers are eligible based on salary levels alone.
The FLSA says that employees can be exempt from overtime if they perform executive, administrative or professional duties, but the rule “creates essentially a de facto salary-only test,” Mazzant wrote in the 20-page ruling. The Labor Department said in a statement that it strongly disagrees with the decision. It remains confident that the entire rule is legal, and it is currently considering its options, department spokesman Jason Surbey told Reuters.
We have been fielding many calls from clients about this. Some clients who have already made the necessary changes are wondering whether to roll them back; others are wondering whether they should move ahead with what they have planned. Critical to many of these decisions are issues relating to employee communication, morale, compliance – and of course, budgets.
For clients who have already implemented changes, our recommendations clearly need to be tailored to each individual situation. For those who have yet to put in place the necessary changes, with only a short window between now and the transition to a new administration in Washington, our best advice is to wait and see how things pan out.
"We have been telling employers to sit tight while the uncertainty persists," Michael Arnold, an attorney with Mintz Levin in New York City, told the Society for Human Resources Management (SHRM). "Legally, there is nothing they have to do for now, but there are business decisions that will need to be made."
According to the SHRM report (read it in full at www.shrm.org), in industries with tight profit margins, such as the retail and restaurant industries, employers may be at a labor cost disadvantage if they implemented the rule early and their competitors never put the changes in place. On the flipside, some businesses may be less competitive if they cannot attract qualified workers because other employers in their industry already made the changes and are offering higher wages.
We encourage you to contact us with any questions that you may have as a result of this regulation or the recent legal and/or political developments.
Claudia St. John is President of Affinity HR Group and a Strategic Partner of the HRGroup, a provider of Human Resource support services, including hiring practices, compensation programs, talent development and more. For additional info, or to suggest a topic for a future article, email [email protected].
