New Overtime Rule On Hold – Employers in Limbo

What is the status of the overtime rule for white collar employees?

In May, the Labor Department announced significant changes to the white collar exemptions to the overtime rule under the Fair Labor Standards Act (FLSA) for executive, professional, administrative and highly compensated employees. Now that a federal judge has blocked the rule, however, employers have been left in limbo.

The rule was contested by a number of states and business groups, including the U.S. Chamber of Commerce. In late November a district court judge in Texas agreed saying the rule was unlawful. Had the rule taken effect on December 1, the minimum annual salary a worker can earn and still qualify for overtime would have doubled from $23,360 to $47, 476 (or $913 per week).

The goal was to expand access to the middle class by raising the wages of employees who were classified as exempt. Many observers agree that the new rule would have significantly affected small businesses, government agencies, non-profit organizations as well as the retail and restaurant sectors.

So, it comes as no surprise that there was pushback. The question remains as to how employers should proceed. Some businesses had already taken steps to adjust their compensation structures either by planning to raise salaries or reclassifying employees as non-exempt. By raising salaries to the required threshold, employers are faced with significantly higher labor costs. Similarly, employees who were slated to be reclassified as non-exempt would be required to stick to a time clock, some of whom may viewed this as a demotion.

When the Labor Department issued the new rule, it kept the duties test intact, which the district court judge used as a basis for his ruling saying that the rule “creates essentially a de-facto salary-only test.” The district court is also considering the issue as to whether or not the Labor Department has the authority to determine which workers are eligible for overtime. Meanwhile, the Obama Administration has appealed the decision.

The Takeaway

In the end, it is unclear whether employers will eventually be required to adjust the classification and compensation of previously exempt, white collar employees, and what affect the incoming Administration will have on the rule if any. In the meantime, if you have questions about how this ruling affects your business or wage and hour determinations in general , you should engage the services of an experienced employment law attorney.