The Department of Labor’s overtime final rule is expected to make another appearance this March. This time, however, the rule is expected to be more reflective of business realities, following a changeover in leadership as well as investigative efforts by the Department of Labor, or DOL.
First, a little background: As many of you may recall, the overtime final rule was slated to take effect on Dec. 1, 2016. It would have more than doubled the current minimum salary threshold for white-collar overtime exemptions under the Fair Labor Standards Act, or FLSA. More specifically, the Final Rule was set to increase the existing threshold, promulgated in 2004, from $455 weekly ($23,660 annually) to $913 weekly ($47,476 annually).
Just days before the rule was scheduled to take effect, however, Texas District Court Judge Amos Mazzant put a temporary halt on its implementation, dubbing the rule an overextension of the DOL’s authority. Practically speaking, although the court ruling did not remove the overtime rule from the law books, it gave employers some critical breathing room.
With the implementation of the final rule in abeyance, the death knoll to its full implementation came with the election of President Donald Trump and the Senate’s confirmation of Alexander Acosta as Secretary of Labor. During confirmation hearings, Acosta expressed support for a more manageable adjustment of the threshold to about $33,000 annually. After Acosta’s confirmation, the DOL began investigative efforts, including listening sessions across the country and requests for information, which were expected to prepare for the release of a revised overtime rule.
Now long anticipated, a revised rule is under final review and is expected to be released, as a notice of proposed rulemaking this month.
What relief may business leaders expect in the revised rule, as opposed to the prior version?
1. A better discussion with managers. The impact of the final overtime rule was largely felt by middle managers, especially managers of small businesses. At businesses that were not able to pay middle managers the increased salary threshold, many middle managers were facing a change to an hourly status or even layoffs. Many middle managers, especially those who oversee hourly workers, view their salary status as an accomplishment that distinguishes them from subordinates. A change in pay status, perceived as a demotion, was reportedly harmful to workplace morale for some of the most crucial employees. With the threshold being likely more manageable this time around, however, businesses may have a greater ability to avoid layoffs and salary status changes.
2. Minimal to no change in productivity. Many white-collar employees themselves are not even aware of the amount of time they devote to their work until they are asked to track their time, only to discover that they work far more than 40 hours per week. With the anticipated change to an hourly status, many white collar workers were being required to track their time to determine the business’s potential overtime liability following the expected final overtime rule. Based on this tracking, many businesses, concerned about their overtime liability, directed white collar employees to do only what could be accomplished in a 40-hour work week. With some of the most productive employees being changed to an hourly status, many businesses were anticipating a significant decrease in productivity. With the revised rule making status changes less likely, businesses may expect continued productivity at or around the current level.
3. Continued flexibility with employee time. One of the many advantages of the exempt employee status is the ability to be flexible with time. This is advantageous to both the employer and the employee. The final overtime rule, resulting in many employees changing to a non-exempt status, would have been harmful to flexibility. One example is as follows: If you, as an employer, ask a non-exempt employee to make up time from one week to the next, you must be aware that there could be overtime liability, in the event that the employee works more than 40 hours in the workweek. For exempt employees, however, there is no need to be concerned, at least with respect to employee pay, where there is a need for flexible work hours. The more manageable salary threshold expected to be released would allow businesses to continue most of the current flexible arrangements.
4. Avoid the anticipated increase in burdensome on recordkeeping and payroll. Under wage and hour law, employers are legally compelled to accurately track all hours worked by non-exempt, hourly workers. In the face of multiple anticipated status changes, employers could, at the time of the final overtime rule, expect to see a shift in recordkeeping and payroll burdens. Particularly with a potential influx of managers in the pool of wage earners, employers were looking at serious increases in recordkeeping requirements and payroll expenses. For many small businesses that were already struggling with the costs of these burdens, the final overtime rule was disproportionately burdensome. While recordkeeping and payroll will, on some level, remain challenging for many employers, the lower threshold should help to minimize the burden.
What can employers do while they wait for the release of the notice of proposed rulemaking?
First, employers should identify who in their workforce may be impacted by an increase of the threshold. Although we do not know exactly what the new threshold would be, potentially impacted workers would be any employees who are paid a salary of $23,660 to about $40,000.
Second, for businesses that employ salaried workers around the salary level that may be subject to an increase, a good way to determine the potential impact of the increase would be to have all affected employees track their hours to determine whether business needs would be better met, in the event that a change is necessary, by increasing an employee’s salary amount or changing the employee’s pay status.
Third, employers should have an honest discussion, to the best extent possible, with employees about the possible change in the law and how this may impact their positions.
Keely Jac Collins is a partner with the KingSpry law firm in Bethlehem. She represents Pennsylvania employers of all sizes and can be reached at firstname.lastname@example.org.