What’s Going to Happen with the US DOL and Overtime Regulations?

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Last Thursday, the US Department of Labor filed a motion for an expedited briefing of its appeal of the injunction that was put in place to prevent the new overtime rules from going into effect, which were scheduled to become effective on December 1, 2016.

As a reminder, earlier this year, the US DOL issued new regulations, effectively doubling (from $455 per week to $913 per week) the wage threshold at which an employee might be considered exempt from the Overtime rules of the Fair Labor Standards Act. It will take many weeks for anything to happen with the US DOL’s appeal, even though the US DOL has requested that their appeal be expedited.

At this point, the only thing that could happen that would result in the new regulation becoming effective before Inauguration Day, would be:

  1. The 5th Circuit Court of Appeals to allow the appeal to be expedited, or
  2. The court approves a motion to stay the injunction.

It will likely be difficult for the US DOL to justify the request to expedite the appeal, if the only justification is the upcoming change in the Administration. Though, it is commonplace for the US DOL to request a stay on an injunction during the appeals process. This would make the new regulation become effective immediately, at least for a time.

So, what do we do from here?

If you had made changes to your workforce to comply with the new wage threshold, you can either roll back these changes, or keep them in place. Be aware, a move one way or the other is a decision that affects your employee’s status within your organization, and the way in which their paycheck is calculated. In other words, tread lightly.

What do we do with our employees whom we decided to pay a salary amount that complies with the new threshold?

If you have employees who you chose to give a raise, so that they are earning a salary amount that allows them to be considered exempt under the new rule ($913 per week or $47,476 per year), you can:

  1. Move them back to hourly, or
  2. Keep them on salary, but at a lower amount than the new FLSA threshold requires (but not below $455 per week), or
  3. Keep them on salary, at or above the new threshold of $913 per week

My suggestion would be to go with option #1 or option #3. There are pros and cons to both. Here is the why behind my recommendation:

Every staff person you pay on a salary basis, should also have an assumed, corresponding number of hours worked per week.

Even for salaried employees, there is often an assumed number of hours per week that you can rely on someone working. This is commonly referred to as the reasonable relationship test. Loosely defined this is the salary (the usual earnings) paid for the normal scheduled workweek (the assigned hourly, daily or shift rate). At Checkmate, the employees who earn salary and are exempt from FLSA, are, first and foremost, simply expected to get the job done, and they are not done working until that is achieved. Still, my expectation is that every salaried, exempt person who works for me will be able to get their job done well, in a minimum of 40 hours and a maximum of 60 hours per week, and still earning the threshold amount of $455 per week.

So, in this scenario, if I pay someone a salary amount of $1000 per week, I can translate this into an equivalent hourly position as follows:

  • Salary Amount = $1,000 per week
  • Regular Hours Worked per week = 40
  • Overtime Hours Worked per week = 20
  • 40x + 20y = 1000
  • Y = 1.5x • 40x + 20(1.5x) = 1000
  • 70x = 1000
  • X = $14.29 per hour

The point of this is to show that a Salaried employee who earns $1000 per week, and is expected to get their job done in no more than 60 hours per week is equivalent to an hourly worker who is paid $14.29 per hour and is allowed/expected to work 20 hours of overtime, per week.

With that said, there is also the employee’s perception to consider. In most cases, there is a trust factor that exists between a salaried employee and the employer, which is not as present with an employee who is paid purely based on hours worked. There is also an added expectation of engagement and commitment that the employer expects from someone who is paid on a salary basis. These are the less tangible elements of the Salary vs. Hourly question. Conversely, for any employer who is considering simply reverting to the way that you were previously paying an employee, after you had decided to turn the employee into a salaried worker due to the new FLSA wage threshold, you may want to reconsider, to ensure that you retain a happy employee for the long haul.

 

This article was written for informational purposes only, and is not intended to be used as standalone guidance on implementing changes within your organization. It is always advisable that you consult with an employment attorney or Certified HR Professional on matter such as this.