Judge Amos L. Mazzant III, a federal judge for the Eastern District of Texas, recently granted a preliminary injunction motion that will keep the U.S. Department of Labor’s (DOL) revised overtime regulations from taking effect on December 1, 2016. The rules are temporarily on hold until the judge considers whether to grant a permanent injunction or grant the states’ motion for summary judgment.
Many businesses have been preparing to comply with the new regulations. So, what now?
Employers have to choose whether to go forward with planned changes on December 1st or put them on hold pending the outcome of the litigation. When deciding, it’s important to consider any planned actions that have already been communicated to individual employees. For example, an employer that decided to keep an employee’s exempt status by raising the salary above the minimum threshold faces the tough call of whether to inform the employee that there will now be no salary change. Conversely, decisions made to reclassify salaried exempt positions to hourly non-exempt would likely be well received by affected employees, if reversed.
We recommend holding off on any changes related to the new rules until their fate is known. The DOL can appeal the ruling to the 5th Circuit Court of Appeals, but a Trump administration would likely drop any such appeal. President-elect Trump has previously voiced his support of the 21-state coalition that filed the lawsuit that led to the injunction.
One thing that employers should do now is review the classification of all their employees. While preparing for the new overtime rules, many employers discovered that some of their employees were improperly classified, even without the changes. In most cases, those employees meet the exempt salary basis threshold (currently $23,660), but do not meet the equally-important “duties” test.
To qualify for an exemption from the overtime requirements under current federal law, an employee generally must satisfy three tests:
- Salary basis test. The employee is salaried, meaning he or she is paid a predetermined and fixed salary that’s not subject to reduction because of variations in the quality or quantity of work performed.
- Salary level test. The employee is paid at least $455 per week or $23,660 annually. This is the threshold that the new DOL rule would have doubled.
- Duties test. The employee primarily performs executive, administrative or professional duties.
Neither job title nor salary alone can justify an exemption — the employee’s specific job duties and earnings must also meet applicable requirements.
Misclassified exempt employees can expose employers to liability for both straight time and overtime for all hours over 40 in a workweek. In addition, employers can be on the hook for penalties and attorney fees (both their own and the employees’). The lookback period is two or three years, so the potential cost is high. Employers should take prompt action to properly classify employees while reducing exposure to the company. Your CSH advisor can help your review the classification tests to stay compliant.