New rules on overtime pay
UPDATE: On November 22, U.S. District Judge Amos Mazzant granted a preliminary injunction that blocks the new overtime pay rules. Read more.
The Department of Labor's Wage and Hour Division (WHD) in May issued new rules effective December 1, 2016 that that will – unless blocked by a federal court in Texas – require that employers pay overtime to executive, administrative and professional employees unless their salary is at least $913 per week, or $47,476 per year. The current threshold for an exemption is $455 per week, or $23,660 per year.
So once the rules take effect, these "white collar" workers must receive time-and-a-half pay for work beyond 40 hours unless their salary is at or above the threshold. Again, the exemption is based not on compensation alone but also on duties as outlined in see 29 CFR part 541.
So even someone who makes more than $47,476 a year may still qualify for overtime pay. Today, highly compensated employees (HCEs) who do not fully meet the "white collar" test are exempt from if they make at least $100,000 in total annual compensation. The new rule raises that minimum to $134,000.
Note, however, that the new rule does not apply to anyone who holds at least a 20% ownership stake in the business.
In an attempt to provide some degree of flexibility, the final rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.
The new threshold of $913 per week/$47,476 a week would be in place through 2019 and would then automatically update three three years based on a formula established in the rule.
The new rule does not affect the motor carrier overtime pay exemption that applies to drivers, driver's helpers, loaders or mechanics as defined in the exemption. It's important to note, however, that this exemption does not apply if the employee drives or works on vehicles that are not defined as commercial motor vehicles – even if their work also involves CMVs.
Where things stand
In September, 21 states filed a lawsuit in the U.S. District for for Eastern Texas to block the new rules. A hearing is scheduled for November 16 on an emergency motion for a preliminary injunction.
While the election of Donald Trump as president makes eventual repeal of the overtime rule more likely, the Trump administration cannot simply invalidate the rule. Assuming the rule is still in place as of January 20, the Department of Labor would have to propose a new rule to repeal it and provide an opportunity for comment. Alternatively, Congress could pass legislation invalidating the rule, which President Trump presumably would sign.
It's conceivable that Congress could pass such provision this year as part of a final package to fund the federal government through September of next. However, any such legislation would not be enacted until after December 1, and President Obama could veto it. Overtime pay could prove just one of numerous controversies to set up a showdown between Congress and the Obama administration before the end of the year.
In any event, the only conceivable action to block the rule before December 1 would be a ruling by the federal judge in Texas – or possibly the U.S. Court of Appeals for the Fifth Circuit on appeal.
How to proceed
Regardless of what might happen eventually, it would be very risky for employers to ignore the new regulations unless some official action is taken prior to December 1 to block the rule's enforcement. That said, employers could be in an awkward position if the courts don't block the rule. Failing to expand overtime pay would put employers in clear violation of a federal regulation, which is never advisable. On the other hand, implementing the rule could mean giving employees, in effect, a raise that within a few months you will no longer be legally required to provide. Understandably, employees might not be pleased if you
If applying the new rule would be financially burdensome for your business, it may be worth contacting an employment law attorney to determine whether you can structure your employee compensation structure to offset or minimize the impact. TransComply Members can contact us for referrals, if necessary.
Wage and Hour Division resources
Updated November 11, 2016
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