New Overtime Pay Rule Is Blocked. Now What?

The Obama administration made sweeping changes to the Fair Labor Standards Act (FLSA), which raised the threshold for salary “exemption” from $23,000 per year to $47,476 per year ($913 per week). Yesterday, Texas Judge Amos L. Mazzant III blocked the implementation of this law.

This is a temporary injunction, which means that the change can be implemented at a later date, depending on how the pending court cases are decided. Of course, with President-Elect Trump expected to appoint a much more business friendly labor secretary, it’s possible that this regulation change will not come back.

Employment lawyer Jon Hyman explains that this case hinged on the fact that the “new, higher salary level improperly swallows the rest of the exemption test and makes salary alone dispositive on the issue of exemption qualification.”

In other words, the law specifically has a duties test that must be looked at to determine whether or not a person should be exempt from overtime requirements. Mazzant felt that the new salary level was so high as to completely do away with the exemption test for particular job duties (referred to as EAP duties–executive, administrative, or professional), in direct opposition to the law. These duties break down as follows:

Managerial: Do you manage two or more employees and have hire/fire authority? This is not determined by title alone. For instance, if a fast food manager spends the vast majority of her time prepping food, running a cash register, and doing other non-exempt tasks, the fact that she has the word manager in her title isn’t enough.

Professional: Doctors, lawyers, and teachers are always exempt, regardless of salary–even under the current on-hold regulation–but other professionals also qualify if they meet the salary test. For instance, an independent analyst and a graphic designer most likely meet this professional duties test.

Administrative professionals: These are not “administrative assistants” but rather people in finance, HR, and IT who run the administrative side of the business. They may not manage others, but they keep the business running. (However, please note, there are special exceptions for IT staff that stay in place, regardless.)

Outside sales: These sales professionals have to actually leave the office to be considered exempt–inside sales people who work the phones are eligible for overtime.

Mazzant explains as follows:

To be exempt from overtime, the regulations require an employee to (1) have EAP duties; (2) be paid on a salary basis; and (3) meet a minimum salary level. The Final Rule raises the salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) …. The Department has admitted that it cannot create an evaluation “based on salary alone.” But this significant increase to the salary level creates essentially a de facto salary-only test. For instance, the Department estimates that 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties…. Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption.

What should you do?

Because the ruling came so late, it’s likely that if you have employees who would be affected by this salary change, you’ve already informed them of that. You can certainly keep this in place–no law prohibits you from paying employees by the hour and providing them overtime pay. However, you may wish to take advantage of this reprieve and roll back the changes.

While some employees may have been thrilled to be eligible for overtime pay, many have felt they were being demoted or disrespected for their hard work. For instance, I’ve received the following emails from people affected by this new rule:

I was informed today that I would be going from salary to hourly. I know I am not supposed to look at this as a demotion but since only one of two of us is being switched, it is hard not to. The change is strictly about not having to pay me $483 more per month to take me to the new salary threshold. But as I said, I am a manager and my job duties definitely fall under the Exempt category – I supervise an entire department, I make decisions autonomously etc. I also answer texts and emails after hours and on weekends.

and

My daughter recently told me she had been demoted in anticipation of the new law changes under FLSA. She has a Masters Degree and works as a copywriter for a large non-profit. She was hired as an exempt employee. The company has consistently resisted her requests to be brought up to the industry standard median pay of between $45,000 to $55,000 per year. She was told that effective Dec. 1, 2016 she would be considered an hourly employee. There has been no change in her job responsibilities. She has consistently worked overtime hours since beginning her employment. For example, in two recent weeks she worked 156 total hours preparing for and managing a conference for her organization’s national and international constituency. She has never received overtime pay. My intuition and common sense tell me something is not quite right here.

and

I was just informed yesterday that for the new salary change I will be getting a pay cut of more than $3 an hour but still will be required to work 47 hours a week to make the same as I was making before. Is this legal?

If your employees welcomed the change, it might be worth it for the morale boost to keep it in place, but if, like so many people, they feel demoted and demeaned by it, take advantage of the injunction and keep these employees as exempt employees.

My bet is that this regulation will not resurface again under a Trump presidency, but keep it in mind in case it does come back.