A federal judge’s decision to block the Department of Labor’s new overtime regulation from going into effect Dec. 1 adds a new headache for employers already grappling with how to comply with the rule: Should they roll back changes that have already been put in place, such as awarding raises or converting salaried workers to hourly wages to better track their time? Should they hold off on implementing new policies that have already been announced but weren’t set to go into effect until next week?
The overtime regulation, which would have made more than 4 million additional workers eligible to earn extra pay when they work more than 40 hours a week, doubles the salary cap at which workers are exempt from making overtime pay. Currently, salaried exempt workers who earn as little as $23,660 are not eligible for overtime and therefore are paid the same wages regardless if they worked 40 hours a week or 80. The new regulation would double that salary cap to $47,476 a year.
A wide range of businesses affected by the overtime regulation — including retailers, restaurants and hotels, startups, nonprofits, and educational facilities — have been preparing for the new rule since it was formally announced in May. Some, like Walmart, which recently raised salaries for entry-level managers from $45,000 to $48,500 a year to avoid paying them overtime, have already put changes in place.
But on Tuesday, US District Judge Amos Mazzant of the Eastern District of Texas ruled that the Department of Labor had overstepped its authority by dramatically increasing the salary threshold for earning overtime pay. The National Retail Federation, which filed the lawsuit along with 21 states and dozens of business groups, praised the judge’s decision to put the brakes on “a reckless and aggressive overreach of executive power.”
Workers’ advocates are assailing the judge’s ruling, noting that delaying the rule — or perhaps scuttling it — means that many assistant managers and other low-paid salaried staff will continue working long hours for no additional pay.
The Department of Labor said in a prepared statement that it strongly disagrees with the court’s decision and remains confident in the rule’s legality. “We are currently considering all of our legal options,” the department said.
The election of Donald Trump further complicates the overtime rule, as business groups and worker advocates speculate that his administration could lower the salary cap or reverse the rule altogether. But that would mean biting the hand that feeds him, said Judy Conti, federal advocacy coordinator at the National Employment Law Project, a New York workers’ rights group.
“Look at the working-class voters who helped put him in office,” she said. “I don’t think I would take away a raise for millions of people and tell them to work longer hours for less money, because that’s in effect what he would be doing.”
In light of the injunction, Boston employment lawyer John McKelway is advising clients when possible to hold off on implementing changes. But employers may have already adjusted their payroll practices — introducing new time sheets or changing workers being reclassified as hourly to a biweekly pay schedule, as required by state law.
“I’m already getting e-mails from clients who are alarmed about this,” he said. “The damage that can be done in a situation like this, where it looks like the employer is lurching back and forth and the employees are the ones constantly getting squeezed by this, that can create huge morale problems in the workplace.”
In anticipation of the new overtime regulation, Boston-based Appalachian Mountain Club recently told its employees that their 35-hour work week was increasing to 40 hours, but their pay would remain the same; many of them were also going to be reclassified as hourly employees.
Managers assumed that people were already working 40 hours a week, and made the change to fall in line with the overtime threshold. But many workers were distressed by the news, saying they were being forced to work more hours for the same pay, and the outdoors nonprofit decided this week to reverse the change.
“We want to do the right thing here for our staff and comply at the same time,” said chief financial officer Charles Johnston.
Now, with the rule on hold, the Appalachian Mountain Club is putting all of its changes on the back burner, too.
Many organizations hadn’t yet taken action in advance of the new overtime regulation going into effect. More than a third of small businesses reported that they were not aware of the rule, according to a survey by Manta, the small business online resource. And of those who had employees below the $47,476 threshold, nearly a third said they weren’t actively gearing up to comply.
Even among companies that were planning to comply, employment lawyers and business groups are not convinced that workers would benefit from the ruling. The National Retail Federation conducted a survey before the final rules were issued and found that 32 percent of affected restaurant and retail workers were expected to be converted from salary to hourly, making it easier for companies to limit their hours to avoid overtime or cut their pay to make up for additional costs.
“I’m not convinced in the long run that this would have the benefits that it was touted to have,” said McKelway, the employment lawyer. “The mechanics of how these changes were being implemented will make it more difficult for people to reap the supposed benefits of this statute.”Katie Johnston can be reached at email@example.com. Follow her on Twitter @ktkjohnston.