New employee overtime rules slated to take effect on December 1, 2016, have been placed on a nationwide temporary “hold” pending a final Court hearing on the matter. The new Fair Labor Standards Act regulation, which would have doubled the minimum salary threshold for those not eligible for overtime pay, has been delayed by a Federal Court in Texas. The question is: “What do we do now?”
What Happened? A Federal Court in Texas placed a nationwide “hold” on the regulation scheduled to take effect on December 1st requiring employers to make hard decisions on whether to double the pay for certain salaried employees (exempt from overtime) or pay them overtime for more than 40 hours worked in a week. In enjoining the implementation and enforcement of the new rule, the Court held that Federal law does not grant the Department of Labor the authority to use a salary-level test or an automatic updating mechanism (for minimum salaries). In doing so, the Court held that “[w]ith the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test” and that “[i]f Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.”
What did the Regulation Actually Require? It would have raised the minimum salary for every salaried employee not paid for overtime hours (approximately 4.2 Million nationwide) from $23,660 to $47,476 and also provided for automatic increases every three years beginning in January, 2020.
What Does the “Hold” Mean for Your Organization? It means that you do not have to raise the “exempt” employees’ salaries beginning on December 1st (or pay them overtime) even if they work more than 40 hours. However, this may be a temporary delay since the Court issued only a temporary order until the issues can be decided after a full hearing and final decision.
What Do We Do if We Already Gave or Promised Our Salaried Employees Raises? This is a very sensitive topic since it may not only involve legal issues, but may affect your organization’s morale and finances. In the first instance, you may want to consult with your legal counsel regarding your options which may include leaving those decisions in place (paying the raises or beginning to pay formerly “exempt” employees overtime) or advising employees that the raises (and/or overtime pay) will be postponed pending the final legal decisions on these issues. Other options may be available based on the nature of your business, your organizational structure, and any actions you have already taken to implement the FLSA regulation.
What is Our Recommendation? First, consider the impact of any collective bargaining or employment agreement that may be in place. Second, and most important, and whatever path you choose, your reaction to the “hold” should be done with great care and after seeking advice from your legal team.