On Nov. 22, U.S. District Judge Amos Mazzant III blocked Obama Administration changes to the Fair Labor Standards Act overtime rule that was set to go into effect on Dec. 1, 2016. The rule would have extended overtime eligibility for some 4.2 million Americans and 300,000 workers in Missouri and Illinois.
Read below for background on how the rule could change. More from NPR here.
How will this federal judge’s injunction impact the implementation of the overtime rule? Well, first of all, the injunction has no end date, so employers waiting to make changes could be waiting indefinitely.
Ann Plunkett, human resources consultant and president of WorkPlace Partners, shared advice from Ogletree Deakins, a nationwide law firm that has an office in St. Louis. Mark L. Zaken, managing shareholder of the Stamford office of Ogletree Deakins, wrote extensively about what the injunction means for employers here.
If employers had not yet made changes to comply with the revised regulations:
Employers can make the choice to delay making changes, but that choice carries risk. The injunction means employers cannot be liable for failure to comply at this time. If the regulations are “vacated” (nullified) employers will not be in trouble for failing to comply with regulations. If the injunction is “lifted,” however, employees could seek compliance retroactively.
If employers have made changes to employees’ status already:
The Ogletree Deakins Law Firm wrote that employers have the leeway to approach this issue differently. From what they heard, however, most employers were not going to try to undo what was already done. They also wrote that the same outcomes as described above could apply to employers who decide to take away raises or change the “exempt”/”non-exempt” status of employees — if the injunction is lifted, employees could seek compliance retroactively.
Original story, from Nov. 15, 2016: Nearly 300,000 in Missouri, Illinois will be impacted by new overtime rule going into effect Dec. 1
A new Department of Labor rule that raises the salary threshold for overtime pay protections will impact some 4.2 million workers in the U.S. That’s 85,000 workers in Missouri and 194,000 in Illinois.
What does this mean, exactly? Well, as of Dec. 1, if you are currently a salaried “exempt” employee paid less than $47,476 per year ($913 per week), you will be shifted into “non-exempt” status. That means, for every hour you work over 40 hours per week, you should be paid time-and-a-half. In many cases, this means people who were formerly salaried employees now become hourly employees.
This rule was designed to update the Fair Labor Standards Act, which previously held “exempt” eligibility at $23,660 per year ($455/week). To comply, employers can pay time-and-a-half for every hour worked over 40 hours per week, increase the employees’ salary over the threshold or restrict hours to 40 hours of work per week.
As President Obama said in May when the rule was changed, “Americans have spent too long working long hours and getting less in return.”
This rule change was meant to put more money into the pockets of middle class workers — but is that really what is happening?
Although employers have had six months to prepare and implement changes in payroll and scheduling, many companies and employees remain unaware the regulations are changing. Many small companies and nonprofits are unable to pay employees high enough salaries to cross the new threshold yet still expect employees to work over 40 hours.
Some workers themselves are confused about exactly how the new rule will be enacted. How do they bring it up with their employer? Will they be fired if they can’t finish their work within 40 hours? Will they be expected to lie on their timesheets while still continuing to work over 40 hours?
On Tuesday’s St. Louis on the Air, we explored these issues and just who the new rules impact with employment law attorney Russ Riggan, of Riggan Law Firm, and human resources expert Ann Plunkett, who is the president of WorkPlace Partners, Inc.
Here’s exactly what you need to know:
What is changing?
Plunkett: The threshold for non-exempt workers is being increased from $23,660 to $47,476 per year. Employees who have historically been paid as an exempt employee and who are paid under the $47,476 threshold, will now be eligible for overtime pay.
Either employers will have to make them hourly employees or they will have to pay them time-and-a-half.
Riggan: You can also raise the employee’s salary to just over the salary threshold. This is not necessarily a doomsday scenario for employers because, if you’re paying someone $24,000, you’re not going to double their pay to comply…it is cheaper to pay them less. You can also limit them to 40 hours or less. Overtime pay is only due to people who work over 40 hours per week.
“Employers and employees are going to have to do a better job of managing workflow and productivity,” Plunkett added.
Wait. What does “exempt” and “non-exempt” mean again?
To qualify for exemptions to being paid overtime, employees must meet certain tests regarding job duties AND be paid not less than, as of Dec. 1, a salary of $913 per week. There are exemptions for executive, administrative, professional and a multitude of other kinds of employees. You can find a full list of employment exemptions here, on the Department of Labor’s website.
So, who is impacted?
“Does an employee fit in one of those categories currently? If the answer is “yes” and they make less than $47,476 currently … then the employer goes into an analysis of how to comply with the new rules,” Riggan said. “But if you don’t fit in one of those three categories currently, then this doesn’t matter. It is the middle segment of those groups who is impacted.”
Teachers, blue collar workers, outside sales workers, retail sales, first responders and highly compensated employees do not qualify for the new change in exemptions. Non-profit workers, on the other hand, do qualify for the change in overtime pay.
Employers have a legal obligation to track the hours of work of their non-exempt employees. This rule-change means that there will likely just be a larger number of non-exempt workers to keep track of.
“Flexible working scenarios that used to work well for employers and employees aren’t going to work so well now, in non-profits and in business,” Plunkett said.
Why is this changing?
“The FLSA is nothing new, it was passed in 1938,” Riggan said. “The reason it was passed was that unemployment was at a record high and the government had put in place, essentially, a tax. If an employer had 60 hours of work to distribute, it could give it to one employee and pay 20 hours of overtime or distribute those hours 30 and 30 to two employees. It is a tax on employers that choose to horde the work among a smaller group of people. The employer can always choose to distribute the work a different way and employees get paid for the hours they’re working.”
Plunkett said that many employers were shocked when the salary threshold essentially doubled — but that happened because it had been so many years since the salary threshold was updated.
“If you look at dollar value vis-à-vis inflation of the current regulations, back in the ‘70s and ‘80s, those were consistent with new pay rates that are going to be in the workforce,” Riggan said. “So, the current regulations seem like a big jump, but it is an adjustment for inflation that has occurred over 20, 30 years.”
It should be noted that the new rule that goes into effect Dec. 1 also means that the salary threshold will be automatically updated every three years to keep up with inflation from here on out. The last time the FLSA overtime salary threshold was updated was in 2004.
Could President-Elect Donald Trump change the rule once he’s in office?
“Anything can happen with the new administration that I don’t think we’re in a position to predict,” Plunkett said. “As a practical matter, though, employers would be well advised to go forward with plans to be in complete compliance as of Dec. 1.”
Riggan said that there are two ways the FLSA could be altered once Trump is in the White House. First, Congress could pass a statute that does away with the overtime regulations all together. Second, he could have the Department of Labor go through the overtime notice just as the Obama administration did, thereby choosing to do away with it and change it. That process would take months if not years, though.
“It doesn’t happen with the stroke of the president’s pen,” Riggan said, commenting that an executive action drawing back the order would likely not be upheld.
Should employees’ whose status has changed be worried about how they are evaluated?
“It is probably the major issue with this rule,” Riggan said. “My firm handles a lot of cases for workers bringing suit to enforce wage and hour laws. A lot of employers are forcing off-the-clock work because they don’t want to pay overtime. They’re telling people ‘you’ve just got to get it all done,’ but the problem is I have 50 or 60 hours of work and I’ve got to ‘get it all done’ in 40 hours. What a lot of employees are doing now is resorting to self-help by writing down 40 hours but I’ll do 50 or 60 to get the job done.
“The problem with that is that the law does not permit the employer to accept extra hours of work especially if it knows the employee is working.”
What happens if employers don’t comply?
“The penalties for non-complying employers are big,” Plunkett said. “Not only is the Department of Labor eager to enforce the rules against an employer who is not paying overtime, but lawyers take those cases too. It is back pay, it can be double pay, it can even be triple pay.”
Riggan said the Department of Labor is actually much softer on employers than private lawyers. The department can only go after back pay and does not charge attorney’s fees. On the other hand, private lawyers are able to go after back pay and liquidated damages, which doubles the amount an employee is owed. They also charge attorney’s fees, which the employer must pay if it is found in violation of the FLSA overtime rules.
Are the overtime rule changes a good thing?
“I believe, overall, it is a good thing,” Plunkett said. “The jump, almost doubling the threshold, was awfully aggressive. On the other hand, I’ve seen a lot of employers who would work someone 50, 60 hours a week who is barely making a poverty-level wage of $25,000 a year. That is certainly going to be addressed now.”
The discussion about FLSA overtime we’re seeing now is an age-old argument.
“It is the ever-present tension between someone’s right to run their business the way they want to run it without regulation and on the other hand, making sure workers are paid for the time they put in,” Riggan said. “It is a textbook example of worker vs. employer rights.”
Should you bring this up to an employer if it has not been brought up with you?
The short answer? Yes.
“You’d be doing them a favor, a service, to bring it up if the employer has not brought it up,” Plunkett said. “You can phrase it as ‘I understand the rules are changing and I’m curious about how this impacts me and my job.”
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