Overtime Rules Up in the Air

December 21, 2016

By Wade W. Herring, II, special to Business in Savannah

The overtime rules of the Fair Labor Standards Act (FLSA) were set to change on December 1. Amos Mazzant, a federal district judge in the Eastern District of Texas, issued an order on November 22 that blocked implementation of the new rules. The Department of Labor (DOL) has already appealed Mazzant’s order, and the Fifth Circuit Court of Appeals granted expedited review. Meanwhile, the Trump administration takes office on January 20. Employers and employees alike are asking, “What next?”

After a legal and political fight lasting years, Congress passed the FLSA in 1938, and President Franklin Roosevelt signed it into law. Part of the regulatory landscape for the last 78 years, the FLSA regulates child labor, creates a minimum wage, and requires overtime pay for nonexempt employees. The original minimum wage was 25 cents, and the maximum workweek was 44 hours. Today, the minimum wage is $7.25, and the maximum workweek is 40 hours.

Some jobs are exempt from overtime requirements. The most common overtime exemptions are for “white-collar” jobs: executive, administrative, and professional. Job duties, not job titles, determine whether an overtime exemption applies. In addition to job duties, an exempt position requires a salary. Contrary to popular wisdom, however, a salary alone does not determine whether a job is exempt from overtime.

Part of the Executive Branch, the DOL interprets and enforces the laws that govern the workplace. Last updated in 2004, the minimum salary requirement for an exempt position is $455 per week, or $23,660 per year. Using its rulemaking authority, the DOL increased the minimum salary requirement to $913 per week, or $47,476 per year, effective as of December 1, 2016.

The DOL estimated some 4.2 million Americans would be affected by the rule change. If an employer wished to maintain the overtime exemption for an employee making a salary less than $913 per week, the choice was to increase the salary to meet the new test. Or, if the employer chose not to increase the salary, the employer could convert the employee to nonexempt and pay overtime whenever the employee worked more than 40 hours in a workweek. Either way, impacted employees would realize an increase in pay.

Filing suit in Texas, the State of Georgia and 20 other states asked the federal court to block the new overtime rule. The U.S. Chamber of Commerce, National Association of Manufacturers, National Federation of Independent Businesses and other business groups also filed suit in the same court. Ruling in favor of the states and the business interests, Judge Mazzant, an Obama appointee, issued a nationwide injunction that stopped implementation of the revised rule. In most work places, the injunction has meant that anticipated pay increases have not occurred.

While an appeal of Judge Mazzant’s ruling is pending, the Trump administration may short circuit the judicial process. Congressional Republicans as early as March of this year had introduced legislation to stop the salary increase for the overtime exemption. With Trump as president, the DOL could decide to drop the appeal.

If confirmed, Trump’s nominee for Secretary of Labor, Andrew Puzder, is unlikely to support a salary increase for the overtime exemption. Puzder is chief executive of CKE Restaurants, the company that franchises Hardee’s and Carl’s Jr. In a Forbes op-ed piece, Puzder wrote, “This new [overtime] rule will simply add to the extensive regulatory maze the Obama Administration has imposed on employers, forcing many to offset increased labor expense by cutting costs elsewhere. In practice, this means reduced opportunities, bonuses, benefits, perks and promotions.”

The question remains whether any salary increase will be applied to qualify for exempt jobs. Before the election, even opponents of the salary increase seemed to agree that while a requirement of $913 per week was too much, the current standard of $455 per week is too low. Does a new president who campaigned to help working-class Americans maintain a 12 year old salary test that means no pay increase for anyone? Businesses and their advisors make plans based upon what the rules are, and upon what the rules may be. After this election cycle, however, predictions about future regulations seems like a risky proposition.

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