Small businesses nationwide had been planning for a new FLSA overtime rule to go into effect on December 1, 2016. But on November 22 — less than two weeks before the rule was set to go into effect — a federal court issued a nationwide injunction against the new Fair Labor Standards Act (FLSA) overtime rule, essentially stopping the new rule in its tracks. For now.
The rule change would have increased the minimum salary requirements for certain exempt employees, making more than 4 million additional U.S. workers nonexempt and thus eligible for overtime pay. The preliminary injunction delaying the effective date of the overtime rule leaves countless small businesses in limbo as the federal courts move toward resolving the dispute.
Twenty-one states, as well as several business groups, filed lawsuits against the U.S. Department of Labor (DOL) challenging the overtime rule changes. The states and businesses claim that the regulatory agency overstepped its authority in doubling the "salary threshold" for exempt employees from $23,660 to $47,476, according to Reuters. Federal District Court Judge Amos Mazzant agreed, stating that the DOL lacked the authority to raise the salary cap so high, thereby effectively creating a de facto salary-only test for exempt employees.
Next Steps for Small Businesses
In light of the temporary suspension of the final overtime rule, employers may need to assess next steps. Here are four options you should be considering now.
1. Move Ahead as Planned
This option assumes that the injunction will be lifted and the court's final decision will favor the position of the DOL. So if you've already reclassified employees and started tracking their time, let them know that you won't be changing anything and they will remain in their current classification.
2. Develop a Plan B
This option accounts for the fact that the federal courts may strike down the overtime rule, or force its modification. If you have yet to reclassify employees or make changes, consider reviewing their status to ensure compliance with existing FLSA requirements and track hours worked. But if you have reclassified employees, you can tell them that you'll be monitoring the legal developments, and if the court's decision is overturned, you'll take that determination into consideration and assess whether further action is necessary.
3. Communicate With Your Employees
Whether you choose options 1 or 2 above, you should be proactively communicating with impacted employees about the status of the overtime rule and any subsequent employment decisions once the matter is resolved.
4. Stay Agile
Lastly, develop your capability to remain agile and flexible in your timekeeping systems and with all your employee-related data. You should be putting systems in place now that will enable you to respond quickly, no matter what happens. Getting the help of an outside vendor for payroll or timekeeping systems and regulatory know-how may be your best bet in today's fast-evolving regulatory climate.
A final word: With a new president taking office and the status of the new overtime rule in legal limbo, your ability to be agile will be a key success factor, whatever happens next. And remember to consult a local employment attorney to better understand any risks surrounding the next steps you decide to take.
* A U.S. District Court has temporarily blocked the new overtime rules from going into effect on December 1, 2016. Read the Eye on Washington to learn more.
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