UPDATE on New Overtime Rule: What should Employers do now?

Posted by Kenneth N. Winkler on

The deadline was set. On December 1, 2016, the Department of Labor’s (DOL) new Rule to expand the number of workers eligible for overtime compensation was to become effective. Then, just 8 days before the ruling, a U.S. District Court judge in Texas issued a nationwide injunction to block the new overtime Rule.

The injunction has left many employers across the nation confused about what they should do about employee compensation, especially those that have already increased certain salaries in anticipation of the new Rule.

The update below identifies timely options and issues employers should consider in deciding what action they should take for their organization (Click here for a summary of the DOL Overtime Rule.)

What Should Employers Do?
Unfortunately, there is no textbook answer to this question as there is no singular solution that will work for all employers. Employers should take into consideration their financial situation and the impact its decision may have regarding employee morale and retention in the short and long-term.

Accurately predicting how a decision will impact employee morale may be challenging because impacted employees may feel differently about changes to their compensation or classification. For example, some employees who are reclassified as non-exempt may be excited about the opportunity to earn overtime while others may view a reclassification as a demotion.

Against this backdrop, here some options for employers to consider depending on whether they have implemented changes yet.

Option #1. Employers who have not yet implemented any salary changes or classification changes can lawfully continue to follow the existing rules for overtime exemptions and see what develops. If the injunction is reversed and the Rule goes into effect, they can decide at that point what they wish to do comply with the Rule.

However, if an employer in this category previously promised salary increases or changes to exempt status, it should be prepared to address morale issues of the employees who were expecting to earn a higher salary or overtime. Some employers may choose to implement planned and/or announced salary increases or reclassifications (despite the injunction) because they feel it would be detrimental to their company in the long term.

Option #2. Employers who have already made salary changes or classification changes in anticipation of the Rule also face a dilemma. For cost reasons, these employers might feel financially compelled to roll back the salary increases and maintain the overtime exemptions that were previous in place. Of course, this strategy may also create employee morale issues. Given concerns over morale issues, as well as the uncertainty of how long the injunction will be in place, some employers may choose to keep the status quo and continue paying the increased salaries despite the injunction.

If an employer chooses to not implement any announced salary increases or roll-back implemented salary increases, it is critical that the employer carefully consider how it will communicate this decision to employees.  One clear message should be that the company values the employee and will closely monitor the status of the Rule to ensure it will comply with any changes. However, for the time being the company will fully comply the law currently in effect.

Finally, employers who have already implemented changes or informed employees of anticipated changes should seek individualized advice of counsel prior to changing course.

Click here to learn more about the basis for the injunction.

As always, let us know if we can help or if you have any questions about the new rule.