Several employers prepared communication plans and made final arrangements for compensation modifications in an effort to comply with the U.S. Department of Labor’s (DOL) overtime rule, which was set to go into effect on December 1, 2016. On November 22, 2016, the DOL’s new rule was preliminarily blocked on a nationwide basis by the U.S. District Court for the Eastern District of Texas. Due to this unexpected course-changer, workers are not likely to see the much anticipated pay increases and employers are left unsure about how to deal with internal employment changes already implemented or changes that were set to begin this month.
The National Association of Home Builders and the Associated Builders and Contractors, along with other business organizations, filed an action challenging the DOL’s Final Rule in September, at the same time, 21 states filed a similar suit to enjoin implementation of the rule.
Prior to the injunction of the DOL’s Final Rule, employers would have faced increased wages to meet the higher salary level, potentially paid more in overtime costs, and possibly redistributed workloads, adjusted schedules or spread work hours to other employees. In effect, the rule would have doubled the current minimum salary threshold for employees that are exempt from overtime pay and may have required some employers to consider switching certain employees from salaried to hourly positions.
The rule would have also automatically heightened the salary threshold every three years. Such a provision would have allowed for frequent labor cost increases and because construction projects, in particular, often last longer than three years and are well planned in order to stay on time and on budget, the effect could make predicting overall project costs a real challenge.
The injunction is preliminary, meaning the case will continue and the court will eventually make a final decision. This delay gives employers more time to consider how to best classify employees in light of the eligibility criteria and address salary and scheduling changes.
For now, employers can continue to classify employees as exempt if they meet the unchanged test for executive, administrative, and professional duties, are paid on a salary basis, and receive a salary of $23,660 per year.
If you are an employer and have already announced plans to implement compensation or scheduling changes, you may need to decide whether to move forward as communicated or to undo or delay carrying out any plans. In making this determination, employers who previously announced salary increases to meet the new threshold may be pressured to keep the pay increases rather than reverse them and negatively impacting morale. These employers may wish to maintain the increased wages, but simultaneously hedge against future raises by clearly communicating plans to impose salary freezes in the near term.
Employers who completed exemption evaluations in anticipation of the final rule may have determined which positions satisfy the white-collar duties test for overtime exemption and may want to move forward with any reclassified positions since undoing the change could also impact morale.
Before making any permanent changes, employers should consult with counsel and review their exempt positions to ensure they satisfy the test for executive, administrative and professional duties.