As we have reported in prior E-Alerts, the U.S. Department of Labor’s changes to the Fair Labor Standard Act’s (FLSA) overtime regulations, including a new annual salary threshold of $47,476 (approximately $913 per week) remains scheduled to take effect on December 1, 2016. However, a federal judge for the Eastern District of Texas conducted a hearing yesterday on a Motion for an injunction, filed by 21 states, to block the rule from taking effect. In a contentious hearing, the Judge referred to the new rule as “drastic” and “radical”. The judge has promised to issue a decision by next Tuesday, November 23, 2016. Irrespective of what action the judge takes, there are now also some rumblings that the incoming Congress along with the Trump administration will roll back the new overtime rule, though in what ways Congress may change the new rule are less clear.
Given this new development, what should employers do regarding implementation of the new overtime rule? Employers should plan for a December 1, 2016, effective date for the new rule, though employers may want to wait until Tuesday’s court decision before finalizing any changes. Employers could delay implementation of any changes if the Texas Court issues an injunction.
If the court declines to order an injunction, some employers can consider a delay in providing pay raises or formally reclassifying employees to hourly employees, at least until such time as we see what comes out of the new administration. Employers could choose, on an interim basis, to treat employees who do not satisfy the new minimum salary threshold as salaried nonexempt employees. However, this option is not without complication, because if the rule goes into effect on December 1, 2016, an employer would still need to track hours worked by salaried, nonexempt employees and pay an overtime premium for any hours worked over 40 for this interim period. Once the dust settles in Washington, employers could make more long term decisions regarding whether to raise an employee’s salary to meet any new salary threshold or continue to pay the employee overtime pay. The above option is further complicated and may not be feasible in situations in which employers have already informed employees of pay raises.
We will provide you, our clients and friends, with an update once the court issues an opinion next week. Achieving and maintaining full compliance as of December 1 is a critical objective if the court does not issue an injunction. It is important for employers to have in place a robust compliance plan as well as appropriate policies to implement a strategy and handle operational challenges, recordkeeping, and overtime payment. For more information, please contact Peter Bennett (firstname.lastname@example.org) or Rick Finberg (email@example.com) of The Bennett Law Firm.