What has happened to the FLSA overtime rule?

The Fair Labor Standards Act (FLSA) which was enacted by President Franklin Roosevelt in 1938 was designed to establish and regulate minimum wage, overtime pay, employee record keeping, as well as Child Labor standards. Except in very few instances, the FLSA supersedes every other labor laws in the United States. It also makes provision for employees in federal, states, local government and private establishments. Under the act, workers are classified as either ‘exempt’ or ‘nonexempt’ based on pay threshold that has been reviewed a couple of time and duties.

Exempt workers are those that earn at least, a minimum of the benchmark and are paid on a salary basis. They are equally expected to pass the standard duties tests. The most frequently cited job classifications/duties that can qualify for the exemption status are executive, administrative, and professional positions. The duties performed by the employees and not the job titles are considered. The exempt employees do not qualify for overtime pay.

Non Exempt workers are those that do not earn up to the required threshold. They are therefore covered to receive overtime pay when they work more than 40 hours within a work-week (the workweek covers seven consecutive 24 hours period or recurring span of 168 hours). Employers are mandated to pay workers 1½ times the regular hourly rate for overtime. The FLSA has been reviewed only a couple of time with the last successful one being in 2004 when the threshold was raised by President George W. Bush to $23,660 per year.

New Overtime Rule

On May 18, 2016, the Obama administration, through the Department of Labor (DOL), issued an update on the FLSA overtime rule, also known as the final rule. The new regulation was to take effect from December 1, 2016. It was expected that the rule will, within the first year of its implementation, extend overtime protections to more than four million workers across the United States. The key provisions of the final rule are as follows:

  • It covers both hourly and salaried workers that earn less than $47,476
  • It changes the annual salary threshold for exempt position from $23,660 to $47,476
  • It sets automatic update of the salary level requirement in 3 years
  • It adjusts the salary threshold for highly compensated employees (HCE) from $100,000 to $134,004
  • It permits the use of nondiscretionary bonuses and commissions to satisfy up to ten percent of the standard salary level in as much as the compensations are made, at least, on a quarterly basis
  • Teachers, Doctors, and Lawyers were exempt from the regulation
  • The duties test remains unchanged.

This revised FLSA overtime rule generated lots of controversy with employers finding it difficult to adapt to the new structure and keep costs at a reasonable level. They accepted that a review was inevitable, but reasoned that the threshold was far too high.

Legal Issues

On November 22, 2016, the implementation of the overtime rule was blocked by a preliminary nationwide injunction issued by a Texas federal judge. The case was filed by the U.S. Chamber of Commerce and national business groups as well as over 20 U.S. states. Judge Amos L. Mazzant ruled that the DOL overstepped its authority under the Fair Labor Act (FLSA) and ignored the intent of the Congress by mandating employers to pay overtime wages based on salaries rather than the duties of the employees. The Department of Justice, on behalf of the DOL, on December 1, 2016, appealed the preliminary injunction by a notice filed with the United States Circuit Court of Appeals. There have been several extensions for briefs and responses.

 

Latest update:

The latest update on the FLSA overtime rule is the Request For Information (RFI) submitted by the Department of Labor on overtime, seeking public comments on issues that bothers on revisions of the rule. Prior to his confirmation as Labor secretary, Alexander Acosta had said that he believed that the salary threshold should be somewhere around $33,000. With the RFI being issued, one may expect a proposal for another revised overtime regulations.

 

The Implication:

The preliminary injunction issued by Judge Mazzant still holds. While DOL battle to reverse it, implementation of the new FLSA regulation is still blocked. Employers are therefore required to make decisions regarding their payrolls and how best to communicate the complications with employees. Going forward, there are two basic options employers can consider:

 

  1. Maintain whatever changes that have been implemented.

There were several options adopted by employers prior to the nationwide preliminary injunction. While some employee’s salaries were increased to meet the new threshold to keep them in the exempt status, some other employees were reclassified. Mostly, workers who earned close to the new threshold were the ones that saw their earnings increased. It wouldn’t be a good idea to review the salaries of workers downward, so any employer who had already increased salaries is expected to maintain the changes pending the resolution of the rule.

 

  1. Undo the changes made.

As it stands, the old rule is expected to hold sway until the legal issues surrounding the new one is completely resolved. In that regard, any employer that decides to revert whatever change he had made in line with the new directive is absolutely right. While this may bring about confusion and dissatisfaction, the employer should adopt the best communication method that will help the employees understand that the new rule might still apply but is currently on hold, hence the change of plans.

 

As the DOL seeks new comments, data, and information on the criteria for exemption in the FLSA, it is expected that the Trump administration will fashion out a workable overtime rule that will go down well with employers and employees. Though the salary threshold may not be as high as the previous administration had proposed, it is expected that there will be a raise for employees and that this raise will not be too much for employers to comply with. It will be great if the DOL and employers can work together to correct classification and come up with an acceptable rate.

PSG can help you track employees’ hours and meet your state and federal requirements.

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