New Overtime Rule Blocked - Now What?

UPDATE: DOL to appeal federal judge's ruling blocking new overtime rule.

Check out our post all about this development for more information: DOL Appeals Overtime Injunction.

How will the recent injunction issued by a federal judge will impact the future of new overtime regulations?

In just a few days, a new nationwide rule impacting overtime regulations was supposed to be going into effect. As employers are now aware, however, that is not the case in light of a preliminary injunction issued last week by a federal judge for the U.S. District Court for the Eastern District of Texas.

In issuing the injunction, the judge ruled that the DOL likely overstepped its rule-making authority by raising the salary threshold as high as it did and by implementing the automatic increase every three years. The new overtime rules were slated to go into effect in on December 1, 2016.

Key takeaways

• The effective date of the final rule has been delayed indefinitely. This means that employers are no longer under any obligation to comply with the provisions of the final rule, and can table plans to raise currently exempt employees’ salaries to $913 per week ($47,476/year) or make employee status changes.
• This injunction is temporary. As of now, it's not clear how long the injunction will be in place, or if the rule will be thrown out entirely during litigation or on appeal, or if the rule will stand in the event the DOL appeals the decision and wins.

Employers should endeavor to stay updated on this issue and remain ready to comply quickly if the decision is reversed.

Suggestions for employers

Organizations that have already implemented changes to comply with the new overtime regulations (increasing employees’ salaries, redefining job duties and descriptions or implementing new overtime policies, etc.) should be cautious about unravelling or pulling back these changes. If the judge’s decision is reversed, employers will still be required to comply with these changes. Additionally, reversing any changes an employer has already implemented could seriously impact employee morale and cause dissent within the workforce.

Organizations that have not implemented any changes to comply with the new overtime regulations might want to consider putting any planned changes on hold until a final ruling is issued.

Employers falling into either one of these categories should also contact their employment counsel or HR service provider with any specific questions or concerns.

Review of possible compliance strategies

While it certainly looks like employers will get at least a bit of a reprieve from the December 1 deadline as the fate of the overtime regulations is decided by the courts, this injunction does not mean employers can completely discount the rule or take it for granted that the battle over overtime regulations is over.

Below are a few compliance strategies outlined in a Preparing For The ACA In 2016: Employer Strategies:

• Employers could simply continue on as they have done, without making any changes to employee hours or salaries, and just pay newly eligible employees overtime. This strategy would work best for an employer whose employees very rarely work more than 40 hours a week, or one whose employees all meet the new requirements to be considered exempt. For most businesses, however, this wouldn’t be fiscally possible.
• Another option is to simply raise impacted employees’ wages to be above the salary threshold. This is another straight-forward but unlikely approach. (In fact, the DOL had estimated that just 0.06 percent of workers would receive a salary increase as a result of the new rule.)
• Employers could also cut affected employees’ base pay so that the addition of overtime pay nets the same salary they had previously earned. This strategy is certain to be one of the least popular among employees, but would allow employers to have their employees work the same number of hours for the same amount of pay. Employees in this scenario would have to work extra hours in order to maintain their previous income, however.
• A fourth option would be to cut employees’ hours or institute stricter overtime policies. These strategies would allow employers to minimize the number of overtime hours their employees work, but are not air-tight. Employers that refuse to pay overtime wages just because the time was not previously approved may find themselves in hot water later on, however.
• Lastly, an employer might choose to cut back on benefits or other “perks.” This is another strategy that is likely to be unpopular among employees. Furthermore, an employer who chooses to cut back on health care coverage may also trigger Affordable Care Act penalties.

This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.