Compensation Corner: Judge Strikes Down Revised Overtime Rule. Here’s What That Means…
As one of our valued strategic partners, we want you to know that the revised overtime rule proposed by the Department of Labor (DOL) under the Obama administration has been struck down by the same U.S. District Judge who put its implementation on hold in November of 2016. Let’s look at what was at stake in the revised overtime rule, what happened to it, and what’s on the horizon for employers when a future alternate version of a revised overtime rule reappears.
Background on the Revised Rule
The revised overtime rule would have more than doubled – from $23,660 to $47,476 – the minimum annual salary that qualified for the Fair Labor Standards Act’s (FLSA’s) “white collar” exemptions. The DOL had also proposed that the salary level be a moving target based on the 40th percentile of average annual executive, administrative and professional (EAP) salaries. The revised rule would likely have meant increased salary levels by virtue of overtime pay eligibility for more than 4 million Americans. However…
Backstory on the Court Involvement
The rule was slated for implementation nationwide on December 1, 2016. In preparation for that, many affected companies had proactively implemented internal changes to employee salaries and/or job classifications. But then, on November 22, 2016, U.S. District Judge Amos Mazzant suspended the implementation of the revised overtime rule. At the time, it was not known if the implementation reprieve would be temporary or lead to a ruling striking down the new rule. We got that answer on August 31, 2017 when Judge Mazzant issued an order permanently blocking the Obama DOL’s rule. (Mazzant’s ruling also found that automatic adjustments to the base salary threshold were unlawful.) The decision was final on all issues before Judge Mazzant, according to Robert Boonin, former chairman of the Wage and Hour Defense Institute of the Litigation Counsel of America. Boonin reported it is unlikely the current DOL will appeal the order.
Back to the Future
So, what does all this mean? It means the FLSA’s existing overtime regulations – last updated in 2004 – remain in effect, including the exempt salary threshold of $23,660. Boonin advises, however, that employers still need to think about how to classify and pay employees moving forward. In fact, it is likely that future rulemaking will indeed ultimately elevate the exempt salary threshold, although probably not as high as the Obama administration had sought.
The Bottom Line
The revised overtime standards for the FLSA would have meant significant wage increases for millions of Americans. For now, the status quo is maintained regarding exempt threshold salary levels. If your company took the initiative and implemented pay program and salary administration changes in anticipation of the implementation of the revised rules, it may be wise to stay the course. Reversing or revising employee-positive changes could lead to confusion and poor morale that could ultimately negate any cost-savings from reverting to the 2004 rules. If you need answers regarding recent changes and how to manage employee compensation and rewards programs moving forward, contact us today at 317.589.8529.
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