Advisory Insights Breaking News: Judge puts overtime pay hike for 4.2 million workers on hold

By Jeff Wilkie, Consulting Executive and Human Capital Strategies Practice Lead

Yesterday, a Texas federal judge blocked the U.S. Department of Labor’s new overtime rule that would have made millions of additional American workers eligible for overtime pay effective December 1st.  This postponement has come in the eleventh hour after many employers have already made changes to comply with the new overtime rule.

In May, the U.S. Department of Labor (DOL) issued new regulations and revisions in response to President Barack Obama’s request to update the nation’s overtime rules.  The new ruling was expected to expand overtime eligibility to more than 4.2 million exempt workers in America.

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The new regulation would require overtime to be paid at one and a half times the rate of regular pay on all hours after a 40-hour work week for salaried employees earning up to $47,476 per year, or $913 a week, more than double current maximums of $23,660, or $455 per week.

Twenty-one states challenged the overtime expansion on the grounds that Congress never intended to set a salary threshold for exemptions or allowing the threshold to be raised every three years, as the DOL’s rule specifies.  Furthermore, President-elect Donald Trump has indicated he is considering the use of executive order to unwind the new regulations when he takes office.

On Tuesday afternoon, U.S. District Judge Amos Mazzant in the Eastern District of Texas agreed with the states indicating the DOL did not have the statutory authority to expand overtime obligations for employers. The Texas court issued a nationwide injunction blocking the new overtime regulations. By issuing the injunction, employers avoid the potential scenario of implementing the new rules on December 1, 2016 only to have the rules reversed by incoming President Trump as early as January 20, 2017.

Jeff Wilkie (@JeffRWilkie), Consulting Executive over HoganTaylor’s Human Capital and Organizational Strategies practice notes: “Many employers had been diligent and had taken steps to implement the new standard. For those leaders, it’s important to communicate to your employees that you are aware the new rules have been put on hold and how it will or will not impact your operations. A natural response would be to let employees know that the initial review of classifications and improvements were important in getting the correct alignment to skills, responsibilities, and expectations. Also, many organizations who have made investments in technology or other process improvements should reiterate the value of tracking the cost of work or services produced and the impacts on budget and workforce planning.  Finally, balancing morale against the desire to turn back new practices or improvements will be a major challenge in the days ahead while we confront this delay or eventual overturn.”

Read more about the ruling at usatoday.com

While this news comes with mixed reviews, we’d certainly welcome employers’ feedback on how they plan to manage through this last minute change, including:

  • What changes have you made?
  • Are the changes already implemented or set to implement effective December 1st?
  • Were any changes reclassifying people from exempt to non-exempt changes that needed/should have been made anyway because employees were misclassified?
  • In your opinion, were the affected employees more concerned about having to track their hours or were they more agreeable to tracking their hours in return for the opportunity to earn overtime?
  • How will morale be impacted if you rollback changes that have already been communicated to employees?

Yesterday’s ruling implies that employers do not need to make the December 1st changes to overtime pay for employees as originally anticipated.  Regardless, it is still a great time for businesses to conduct a self-audit to make sure their employees are properly classified (exempt versus non-exempt) under the existing law.

HoganTaylor Advisory stands ready to help you understand the issues and determine the best path forward for your business.  Please contact us today if you require assistance navigating through these complex issues.