On November 22, Judge Amos Mazzant, of the Eastern District of Texas sitting in Sherman, issued a nationwide injunction blocking implementation of the highly-anticipated changes to the Overtime Rule. A group of 21 state attorneys general, including Ken Paxton of Texas, sued to block implementation of the rule which was slated to take effect on December 1.
The rule change would have raised the overtime exemption for salaried executive, administrative, and professional employees from $455 a week to $921 per week.
In other words, administrative employees making less than $47,892 per year would have been entitled to overtime if they worked more than 40 hours in a week.
The court found that the Department of Labor (DOL) exceeded its statutory authority in issuing the rule change. The court’s decision is available on the Texas Attorney General’s website: http://tinyurl.com/zzdo4mw.
The DOL stated it is considering its legal options. It has not yet announced whether it will appeal the injunction to the 5th Circuit Court of Appeals. The DOL press release can be viewed here: https://www.dol.gov/WHD/overtime/final2016/.
As a practical matter, the ruling comes too late for most businesses.
The DOL announced the proposed rule change on July 6, 2015. The Department received over 290,000 comments to the proposed rule change. On May 18, 2016 the DOL released the final rule and warned the new rule would take effect on December 1.
Larger businesses adopted strategies for complying with the new rule months ago. Businesses that planned to comply and announced those plans to employees will hesitate to change course because of the cost of making changes at this late date, uncertainty whether the ruling will stand, and harm to employee morale.
The Department of Labor has finally issued a long anticipated rule raising the “white collar exemptions”, that is, the salary exemption level for executive, administrative, and professional workers. Traditionally, salaried administrative workers were not eligible for overtime pay unless their salary was very, very low. Beginning December 1, 2016, the overtime eligibility threshold for salaried employees will raise to $47,476 per year or $913 per week. What this means is that salaried employees making less than $47,476 yearly will be entitled to overtime pay for working more than 40 hours in a work week.
The exemption threshold had not been updated since 2004. The new rule provides for automatic updates every three years to maintain the exemption threshold at the 40th percentile of full time salaried workers’ earnings in the lowest wage region according to the U.S. Census.
Plan now to be in compliance on December 1. Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt. There is actually a three part test:
- The employee is paid a salary as opposed to an hourly wage;
- The salary must be at least $47,476 annually for a full time worker to be exempt; and
- The employee’s primary job must be executive, administrative, or professional, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.
Otherwise, the employee is entitled to overtime pay at time and a half the employee’s hourly equivalent rate for each hour worked beyond a 40 hour work week.
The Department of Labor enumerated four options for employers to comply with the new rule:
- Raise salaries to maintain the exemption;
- Keep current salaries, and plan to pay overtime;
- Adjust workloads and schedules so that employees are not working overtime; or
- Adjust wages by converting salaried employees to hourly.
Raising salaries and paying overtime is simply not financially feasible for many businesses. Employees may negatively view adjustments in workloads and schedules or conversion from salaries to hourly pay. There is another way to comply with the new rule without undertaking additional financial burdens: adopt a workplace policy mandating that non-exempt employees cannot work overtime without prior written approval from a supervisor. Enforce the policy consistently. This will help the business be able to predict and control labor costs while encouraging healthy work-life balance for employees.
Businesses have only a few months to plan for the new rule. Start analyzing your options now. A business lawyer can help your business make the transition to the new rule.
The Department of Labor has published this fact sheet for employers: https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf