I prepared for the new DOL Overtime Rule but it’s been blocked. Now what?
Michael W. Kulakowski, Esq. |
Common HR Questions
“In anticipation of the new DOL overtime rule taking effect on December 1, I switched many of our previously exempt employees to non-exempt status based on the higher minimum salary criteria. Since the rule has recently been blocked from taking effect, what are my options now?”
A hot topic among many MEA Members recently has been a new Department of Labor (DOL) rule that was to take effect on December 1. The proposed revision to the FLSA essentially raised the threshold of receiving mandatory overtime pay from $23,660 to $47,476 per year. The new rule sought no changes to the duties tests currently in place in terms of determining exempt and non-exempt status of an employee based on their job responsibilities.
However, it came as big surprise to attorneys nationwide when a federal judge in Texas imposed an injunction against the rule on November 22, per the request of 21 states and a host of business groups. In a nutshell, the judge claimed that Department of Labor regulation exceeded the authority granted by Congress and that only Congress should be able to make a change to the existing rule if it intended the salary requirement to supersede the duties test. The ruling has many of our Members scrambling for solutions as they proactively changed the status of employees from exempt to non-exempt, or raised their salaries to keep them exempt, in advance of the new regulation taking effect. The Hotline exchange below highlights this common post-ruling predicament now faced by many organizations and explores some practical solutions.
Member: In anticipation of the new DOL overtime rule taking effect on December 1, I switched many of our previously exempt employees to non-exempt status based on the new salary criteria. Since the rule has recently been blocked from taking effect, what are my options now?
MEA Expert: Thank you for outreaching to us for guidance. Many of our Members are in the same boat. Based on what you described, you do have three viable options. The first would be to convert them back to exempt and take the chance that this new rule will never go into effect, and that you will not be liable for back overtime pay if the injunction is overturned on appeal.
Member: I thought about doing that, but I am hesitant to take a chance since I don’t know the likelihood of the injunction being overturned. Is the ruling expected to be overturned by the court soon since the Department of Labor appealed the injunction?
MEA Expert: Good question. At present, it’s unclear when the Circuit Court will rule on the appeal or if it will rule on the appeal at all. Although they have been wrong in the past, many experts believe that the likelihood of the injunction being overturned is very low, especially with President-Elect Trump set to take office in January.
Member: That’s certainly helpful information to know and worth considering. What do the other two options entail?
MEA Expert: The second course of action would be to keep them non-exempt and pay overtime, but exercise the option to convert them back to exempt once the legal issue is settled. The third, similar to the second, would be to again keep them non-exempt and pay OT, but in the likely event that the rule does not ever take effect, consider taking account of all OT paid when calculating and issuing later pay raises or bonuses. In other words, decrease the bonus amount or pay raise percentage based on how much overtime has been paid to each of the non-exempt employees.
Member: Options 2 and 3 sound like the most reasonable ones to me.
MEA Expert: Agreed. The third option is in fact the most common one exercised among employers because it allows them to be compliant, it offers flexibility, and insulates them from liability in the off chance that the injunction is overturned. Choosing not to comply with the new rule is certainly a calculated risk.
Member: Thank you for the pointed advice and comprehensive information. Is there anything else that I should keep in mind as we decide what to do?
MEA Expert: Yes, in addition to weighing your options and making a sound decision, it is paramount to ensure that all exempt employees pass the separate duties test. Remember, the legal test for exemption is a two-part test, and employees must satisfy both to be properly exempt – the duties test and the minimum salary requirement. Furthermore, federal law notwithstanding, I always caution Members to be acutely aware of state laws, which may be different than FLSA. For example, Pennsylvania does not recognize the federal computer professional duties test, while California has its own minimum salary requirement which is higher than the federal level.
Member: Good to know! As this situation continues to unfold, is it advisable to call back if I have additional questions?
MEA Expert: Yes, absolutely. We will continue to closely monitor the situation and be available to provide our Members with legal advice and appropriate resource materials. Remember – the MEA Hotline is always a phone call away.
MEA’s goal is to provide current, detailed and useful information to hotline callers, but our responses do not constitute legal advice about what you should or should not do in a particular situation. You should always consult legal counsel, in the context of a confidential attorney-client relationship, before taking any action that could have legal implications for you or your business.