A nationwide injunction filed Tuesday blocking the Department of Labor’s overtime rule — which was scheduled to go into effect Dec. 1 — leaves employers in limbo as to what to do next.
But overall the delay to the rule — which would make more than 4.2 million workers eligible for time-and-a-half wages — comes as a relief for many unprepared employers, particularly small business owners.
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About 37% of small business owners said they aren’t “anywhere near ready” for the overtime rule changes, and 67% said they do not have formal compliance plans in place, according to online small business service directory Manta. And, nearly one third of more than 2,200 respondents said they weren’t actively taking steps to comply with the new rule.
The rule would bring the maximum salary cap to $47,892 a year for workers to be exempt from overtime pay requirements. For some employers, those costs will force them to completely rethink their business model.
“Employers can’t ignore the ancillary impact,” says Michael Schmidt, vice-chair of law firm Cozen O’Connor’s labor and employment department. “The more money employers have to pay for payroll, the less they’ll be hiring, the less they’ll be retaining.”
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The impact of upgrading some employees’ salaries, as per the regulations, could create negative feelings from senior management. The delta between lower-level and higher-level positions will be shortened, and senior employees might feel they deserve a raise as well, Schmidt says.
These issues, along with reclassifying employees, can be pushed away for now.
U.S. District Judge Amos Mazzant III granted the preliminary injunction on Tuesday and is still weighing a challenge to the requirement.
Some organizations, such as the Independent Insurance Agents & Brokers of America, are happy with the ruling, which would have cost around $115 million each year.
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“The rule, should it go into effect, will have a significant impact on many Big ‘I’ agencies and their small business and non-profit clients,” according to a statement from the association that represents a quarter of a million agents, brokers and employees. “As litigation continues, the Big ‘I’ — the only insurance trade association to sue the DOL — will continue to use all means necessary to fight this overly burdensome rule.”
‘Continue’ with compliance
Despite the delay, employers are unsure whether to proceed with their compliance plans.
But Jeffrey Ruzal, an attorney with Epstein Becker Green, says that employers should continue to reclassify employees, even without the Dec. 1 deadline.
“The employer might want to pursue this opportunity to reclassify or change the role of the position so it fits in the role of the exemption,” he says. “That way they’re sort of in a better position.”
Employers should make sure they are enforcing the job duties test, which determine the exemption, as well.
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“Although it is too early to speculate, the language used by the court suggests that it considers the ‘duties test’ the cornerstone of the overtime exemptions and the DOL’s impermissible dilution of that test by also requiring an onerous salary minimum before reaching that test is inconsistent with the FLSA,” says Regina E. Faul, partner at PhillipsNizer LLP. “I think that part of the issue here is when you make the salary test the most important part of the regulation, you never get to a duties test.”
While the ruling is up in the air — Ruzal says the speculation with the incoming Trump administration leans toward a less aggressive DOL — employers should focus on compliance.
“At least the employer went through the exercise of confirming that the duties are satisfied, and that way they’ll know they are in compliance,” Ruzal says. “That’s just best practice.”
