FLSA Overtime Rule Blocked: What Employers Should Do Next

The Department of Labor (DOL) overtime rule is now “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.

On December 1, the DOL initiated an appeal, stating that it stands by the rule and strongly disagrees with the court decision.

Unless the appeals court reverses the decision in the immediate future, the rule may be further delayed, revised or overturned altogether once President-elect Trump takes office.

What should employers do now?

Weigh Your Situation Carefully

If you waited to make any changes, you can continue business as usual until a filing ruling is issued. But if you took action in preparation for the overtime rule, such as increasing salaries or converting salaried employees to hourly employees, you may be unclear about what to do next.

Let’s take a look at the two situations:

1. You increased employee salaries to meet the new $47,476 threshold.

   In this case, it’s best to keep employees at the new salary level for a number of reasons. First, you have to consider potential legal claims for taking away “what was promised” as well as morale issues. And 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.

2. You changed employee status from exempt (salaried) to non-exempt (hourly).
   If you converted the salaries of previously exempt employees to an hourly wage, don’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 raise questions about the accuracy of their classification — and potentially open your business up to litigation.

Take a Careful Look at Employee Classification

“Putting aside the salary threshold issue, the most important thing to do now is to make sure employees are classified correctly according to the DOL’s duties tests,” Wall says.

An employee can only be exempt from overtime pay if he/she satisfies specific tests by the DOL, which reflect 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.

“The bottom line is that the duties tests never changed and will likely not change in the near future,” says Wall. “And the media attention surrounding this case could spark lawsuits against employers as employees become more aware of the overtime rules and decide to question their classifications.”

Finally, if you believe an employee is improperly classified according to the rules tests, now is the time to correct the error. According to Wall, making changes now is less likely to raise a red flag because so many U.S. employers are reevaluating classifications due to the pending overtime rule change.