A federal judge in Texas gave something employers could be thankful for just a few days before Thanksgiving. On November 22, he issued a preliminary injunction on the Department of Labor’s (DOL) overtime rule change that was to go into affect on December 1. It came about from a lawsuit brought by 21 states challenging the DOL’s authority to raise the salary threshold. This was pretty big news for us HR folks. Huge news actually.
Many small organizations, however, didn’t even know the rule was going into effect. I was at a meeting a few weeks ago with a payroll provider who told me that the majority of their clients didn’t know about the new rule when asked about it. It would be safe to say that most managers and small business owners are too busy operating their organizations and don’t keep up on these types of things.
In order to bring these organizations up to date, the rule was supposed to double the Fair Labor Standards Act (FLSA) salary threshold for determining the exemption from overtime from $23,660 to $47,476. This is where we get the exempt and non-exempt employee classifications which I define in this post from my introduction to my series of the FLSA overtime classifications. In addition, it would also automatically adjust the threshold every three years based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region. The Society of Human Resource Management (SHRM) has publicly opposed the new rule as it will hurt nonprofits and smaller organizations and have a negative impact on workplace flexibility and employee morale.
It’s important to understand that the preliminary injunction is not permanent and that the current overtime rule will still be in effect. The court needs to review the merits of the new rule and issue a decision which could take several more months. The fact that an injunction was issued in the first place, makes me think the new rule is doomed.
For those organizations that didn’t know about the rule, they can just go on about their business and not worry about it until a final ruling is issued. For those businesses that knew about it and were making plans or already made plans to comply with the new rule, things may be a little more complicated and until we get a final ruling, here is my advice:
- Fortunately, the injunction was issued on November 22, before the payroll period in which the December 1 deadline fell. I had advised my clients to make their changes effective Sunday, November 27, the first day of the payroll period. By following my advice (Because I’m so smart, LOL), the re-classification of their exempt employees to non-exempt can be postponed until that final decision is made.
- If the organization already re-classified their exempt employees to non-exempt, the organization will need to evaluate how the decision was accepted by the impacted employees. Did they take it well or did they take it poorly? If they took it well, the organization would be wise to leave the re-classification in place. If they did not take it well, the organization might benefit by reversing the re-classifications but need to make it clear to the employees that it may be temporary until the final ruling is issued.
- If the organization already increased (or announced an increase) their exempt employee’s salaries in order to maintain their exempt status, it would be wise leave those increases in place. There will be a great deal of confusion and a big hit on morale if they reverse this decision. An organization can certainly reverse their decision but it will be at the cost of employee goodwill and engagement.
It will be very interesting to see how this case will eventually turn out. As I said earlier, I think the new rule, as it is currently written, will never come to pass. I think the judge issued the injunction because he thinks the challenge by the 21 states has a very good chance of being successful.
However, for those who made plans to comply with the rule, don’t toss out all the work that was done in preparing for it as the court may still issue a decision in favor of the DOL. At the very least, I anticipate that the rule will be scaled back with more gradual and less extreme salary threshold increases.
For those who didn’t know about the rule and didn’t make plans to comply, they’ve been given a pass for the time being but need to be ready to address it if a final ruling is made in favor of the DOL or a scaled back rule is issued.