What Employers Need to Know About the Delayed FLSA Overtime Rule

As you may have heard, the overtime rule from the Department of Labor (DOL) is on hold due to a last-minute move by a federal district court. In response to arguments and concerns by various states and business groups, a judge called the regulation “unlawful” and issued a preliminary injunction on November 22 — a week before the rule was to take effect across the country. The DOL has since appealed; the agency stands by the rule and its lawfulness — and strongly disagrees with the court decision blocking it.

Weigh Your Situation Carefully

What happens now? What should employers do during this time of uncertainty?

Until we know more about the outcome with the DOL’s appeal, the scheduled overtime rule is “on hold.” Because of this, if you waited to make any changes, you can continue business as usual. But if you made specific decisions in preparation for the overtime rule, such as increasing salary or converting exempt employees to non-exempt hourly employees, you may be unclear about what to do next. Let’s look at the two situations:

You increased employee salaries to meet the new $47,476 threshold: It’s best to keep employees at the new salary level for a few reasons. First, you must consider potential legal claims for taking away “what was promised” as well as morale issues. Salary adjustment aside, if employees question their status and seek legal counsel (or go the DOL), they may discover they were not properly classified in the first place.

“FLSA litigation has increased year after year since 2000, and it is the number one class action in federal court,” says Shanna Wall, Compliance Attorney for ComplyRight.” Last year alone, class-action settlements reached more than $400 million. And the DOL recovered $246 million in back wages.”

You changed employee status from exempt to non-exempt: If you converted the salaries of previous exempt employees to an hourly wage, you shouldn’t automatically revert them back to salaried status. The court’s ultimate decision is uncertain, and you don’t want to have to go through the reclassification process again in a few weeks or months. And like the previous scenario, bouncing workers back and forth between exempt and non-exempt may trigger questions about their true legal status — and potentially open your business up to litigation.

Take a Careful Look at Employee Classification

The most important thing to do now, and the best way to protect your business from lawsuits, is to conduct a thorough audit of each employee’s payroll status. An employee can only be exempt from overtime pay if they satisfy specific tests by the DOL, which reflect their actual responsibilities and not a title or job description. These duties tests — typically for executive, administrative and professional employees — are a critical step in properly classifying employees. Plus, they didn’t change with the proposed overtime rule; only the minimum salary did.

“The importance of correctly classifying employees cannot be overstated,” Wall says. “Employers need to be mindful that salary is only one factor in determining exempt or non-exempt status.”

If you find an employee is improperly classified, take this opportunity to correct the error. Because most U.S. employers are reconsidering payroll status due to this pending FLSA overtime change, it’s less likely to raise red flags if you need to make adjustments.