Overtime Rule Delay -- What Actions Should You Take?

As you may have heard, a federal court issued an order blocking the new Fair Labor Standards Act (FLSA) overtime rule from taking effect on December 1, 2016. On November 22, 2016, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a temporary injunction blocking the new FLSA overtime rule. Many businesses had already made plans to implement changes based on the anticipated effective date of December 1, but now that the rule has been delayed, perhaps indefinitely, they are wondering what to do next.

It’s important to remember that this is a temporary injunction. The Department of Labor has appealed the injunction and the 5^th Circuit Court of Appeals has agreed to expedite the case, and no final decision has been reached about whether the FLSA overtime rule will be implemented eventually, whether in its current state or changed.

What should businesses do now?

After the injunction was issued, executive search firm Korn Ferry Hay Group conducted a survey of retail companies and found that more than half of responding retail companies still plan on complying with the overtime rule. In addition, the survey found that almost two thirds of the responding companies who planned on increasing salaries to comply with the $913 per week threshold still planned to make the increases. Most employers may find themselves in one of three categories when it comes to action items:

• Employers who have yet to take action to comply with the new overtime rule 
  These employers have not communicated status or compensation changes to their employees. If you fall into this category, it is recommended that you take no action at this time. Assuming your employees are classified correctly as exempt or nonexempt, wait to see what happens next with the overtime rule.
• Employers who have decided to move employees from exempt to non-exempt status effective December 1
  These employers changed their employees from exempt to non-exempt status in order to avoid salary increases, and are wondering if they can change back these employees to exempt status. As long as a position still meets the exempt duties test under the FLSA, it is fine to reverse the status change. If you decide to reverse, it is recommended that you notify the employees in writing.
• Employers who have decided to increase employees’ salaries to maintain exempt status and have already communicated this to employees 
  This scenario should be reviewed on a case-by-case basis. Some factors to consider would be the method of communication to the employee, the rationale given to the employee regarding the increase, whether it involved a merit increase and the difference in amount between the current salary and increase.
  

As you work through the best course of action for your company based on the FLSA overtime rule, you should also consider that certain states have current and proposed laws and regulations that will increase the salary threshold at the state level. For example, in California, in 2017 the new threshold for exempt employees who work for employers with 26 or more employees will be $840 per week. Those employers with 25 or fewer employees will have an extra year to comply with the increase. This will increase every year through 2022. 

In New York, the state’s minimum salary required for executive and administrative employees will increase proportionately to the state’s minimum wage increases. Effective December 31, 2016, the salaries required for those employees are $825 per week in New York City for companies with 11 or more employees and $787.50 per week for New York City employers with 10 or fewer employees. For Nassau, Suffolk (Long Island), and Westchester counties, the salary required is $750 per week ($900 if paid on a monthly basis).

For the remainder of New York, the salary required is $727.50 per week (also $900 if paid on a monthly basis). These salary requirements will continue to increase proportionately to the minimum wage increases on December 31 of each year until the minimum wage reaches $15 per hour (varies by location and industry but will be reached no later than 2021). Please note that the New York professional exemption does not have a minimum salary requirement and therefore the federal rate of $455 per week still applies for those employees.

If you have any questions about the FLSA overtime rule delay don’t hesitate to contact your TriNet representative for assistance.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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