Yesterday, on November 22, 2016, a federal judge in Texas blocked implementation of a change in the Department of Labor’s “overtime rule.” SmallBusiness.com has tracked the rule change process for nearly two years. Scheduled to go into effect Dec. 1, the change would have required employers to pay time-and-a-half to their employees who work more than 40 hours in a given week and earn less than $47,476 a year. (Scroll to the bottom of the page for more background on the regulation and the definition of “exempt worker” and “salaried employee.”)
Tuesday’s decision, by U.S. District Judge Amos L. Mazzant III in Sherman, Texas, is a victory for 21 states and dozens of business groups (Nevada vs. U.S. Department of Labor). The plaintiffs argued that expanding the number of employees subject to the overtime rule would increase state government costs dramatically.
Dozens of business groups that joined in the suit with the states said the overtime rule would have hurt retailers and other small businesses by adding to labor costs. They also said the change would have forced employers to convert full-time jobs to part-time. The U.S. Chamber of Commerce said the requirement would have added $1 billion in costs and “cause many disruptions in how work gets done. … The rule would have reduced workplace flexibility, remote electronic access to work, and opportunities for career advancement,” the chamber said in a statement.
Putting the genie back in the bottle
The timing of the decision was just in time for many employers faced with the challenge of making decisions that could have meant lay-off of many employees. U.S. employers have spent months adjusting employee schedules, job duties and pay ahead of a new overtime rule.
Employers that made big changes in their workforce ahead of the rule’s Dec. 1 effective date—either by raising managers’ salaries to the newly set threshold for overtime pay or eliminating job categories like assistant manager—told the Wall Street Journal they aren’t yet planning to reverse course, while others are taking a wait-and-see approach.
On Tuesday, the Labor Department said that it is considering “all of our legal options.” With a new administration taking over the White House in January, there is little chance for the ruling to be challenged.
Background: What are salaried employees? Exempt workers?
Currently, workers who are paid by the hour receive “time-and-a-half” overtime pay if they work more than 40 hours a week or more than eight hours in one day. Salaried employees (those paid by the year) are not covered by overtime regulations. Such salaried employees can include a wide range of professionals, administrative workers and executives. (The term “exempt workers” is sometimes applied to this group, as they are exempt from coverage of overtime regulations.)
To keep companies from calling every employee an exempt worker, the law includes an exception for salaried workers whose salaries have been less than $455 a week, or $23,660 a year—they must be paid time-and-a-half for overtime.
The new rule would have increased the “earning threshold” to $913/week ($47,476 per year). Increasing the exemption to that amount would have expanded time-and-a-half overtime pay to an additional 4.2 million workers.