Planned for a December 1, 2016 effective date, the new overtime rule which raised the salary level test to $913 per week under the Fair Labor Standards Act (FLSA) has been suspended by a federal court which issued a temporary injunction.
This means that you do not have to make changes to who gets overtime or to raise pay based on this rule now. At this time we do not know what will happen next. The US Department of Labor could appeal the ruling, the court could move to hearings over a final decision, or the entire matter could get ignored until the next administration takes action.
- If you have taken any actions to meet the $913 salary level test, be careful what you do. Rolling back raises is legal, but is fraught with employee morale and retention risks. Walmart has already announced that it will not do so, as it had granted wage increases in preparation to meet this rule.
- If you have communicated any plans or information on this change to your employees, do communicate that the change has been temporarily blocked by a federal court and that you will comply with current law fully while awaiting further information.
- Even if you have not communicated anything to employees, do expect that many may know of this rule change and have been expecting a pay raise or overtime pay. Pay attention to your employees and address any specific concerns individually.
This salary level test is only one of three tests under the FLSA which must be met to decide whether an employee must be paid overtime or not. It is the duties test which is the most problematic for small businesses – and the most important in determining who must be paid overtime. Many executives and founders do not understand it. Some think that people with college degrees are automatically exempt or that all supervisors are or have other misconceptions. This is a common issue all HR consultants see as do the Alexandria SBDC and other advisors. There has been a significant rise in legal risk as employees become more aware of their rights and take action. An employee or ex-employee can file a claim against an organization simply and without coast via the state wages and hours agency. Law firms exist whose main business is to bring such charges and they advertise. The number of such cases has been increasing for a decade as a result. If you do not really understand the duties test or have not recently audited your positions, now is the time to do so to be sure you are in compliance with current law.