Judge Blocks Overtime Rule
On November 22, 2016, a federal judge decided that a new overtime rule issued by the US Department of Labor (DOL) in May 2016 will not take effect as planned on December 1, 2016.
Employees must make a certain salary (and perform qualified duties) in order to be exempt from the minimum wage and overtime pay requirements of the Fair Labor Standards Act (FLSA) under the “white collar” exemption. That salary threshold has been updated only once in 40 years; in 2004 it was updated from $250 per week to $455 per week (which is equal to $23,660 for a full-year worker). If it hadn’t been blocked, the rule would have increased the salary threshold to $913 per week (which is equal to $47,476 for a full-year worker) effective December 1, 2016.
In its Overview and Summary of Final Rule, the DOL noted that the white-collar exemption was originally meant for highly paid workers who had better benefits, job security, and opportunities for advancement. In 1975, 62% of full-time salaried workers were entitled to overtime pay. But because the salary threshold hasn’t been updated since 2004, only 7% of full-time salaried workers are entitled to overtime today.
After the DOL issued its rule updating the salary threshold, two challenges against the rule were filed in a Texas federal district court. One case was filed by 21 states and the other was filed by the US Chamber of Commerce and other business groups. The lawsuits were consolidated in October 2016, and the states and business groups asked the court to issue a preliminary injunction that would block the new rule from going into effect on December 1, 2016 until the legality of the rule could be decided.
The business groups argued that federal law didn’t expressly authorize either the salary test or the DOL’s proposed automatic updating of the threshold salary every three years. They said that the rule would have “ruinous financial and operational consequences” for the states.
According to Bloomberg Politics, Judge Amos L. Mazzant III, of the US District Court for the Eastern District of Texas, Sherman Division, found that the DOL exceeded its authority by requiring employers to pay overtime based on salary rather than on an employee’s duties. He rejected a request by the federal government to limit his order to the 21 states the filed the lawsuit. Instead, he issued a preliminary injunction blocking the new salary threshold nationwide.
The DOL had estimated that its new rule would impact 4.2 million workers who would either gain new overtime protections or get a raise to the new salary threshold.
In November 2016, the Congressional Budget Office (CBO) reported that canceling the overtime rule would increase total real family income. Although the CBO noted that most of the increased income “would accrue to families in the top fifth of the family income distribution,” it also stated that income would rise slightly “for all families” because if employers didn’t have to pay the new rates, “prices for goods and services would decline slightly, slightly increasing real income for all families.”
In its response, the DOL stated that there was “substantial uncertainty” concerning whether employers would pass their savings on to consumers in the form of lower prices.
Many employers have been preparing for the overtime changes since the DOL announced them. For instance, in October 2016 Wal-Mart raised some salaries from $45,000 to $48,500 annually.
Regardless of the new overtime rule, employers who want to avoid paying overtime have to contend with some challenging issues concerning employees today: many millennials are work martyrs and many employees think that the traditional 9 to 5 workday is a thing of the past. This means that employees often work more than their scheduled hours, answer email and phone calls at home after work, and fail to take vacations. Employers have to be ready to track nonexempt employees’ work time, even if the employer didn’t authorize overtime.
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