In a major blow to one of the last major regulations proposed by the Obama administration, a Texas federal judge has temporarily blocked the implementation of a rule that would have made 4.2 million workers eligible to receive time-and-a-half pay for overtime work.
The judge ruled on Tuesday in favor of a joint lawsuit filed by 21 states challenging the rule, which was set to take effect Dec. 1, arguing that the rule was imposed “without statutory authority”.
The rule would have required companies to pay overtime wages to non-exempt employees who earn less than $47,476 per year — double the current threshold of $23,660. The rules were first proposed in May and the Obama administration gave business owners six months to comply.
Over that time, many companies decided to bump salaried workers pay above the $47,476 threshold to avoid paying overtime hours. Other employers considered hiring more part-time workers and capping existing workers hours at 40 hours per week to avoid the increased cost of paying overtime.
MagnifyMoney interviewed several workers who received raises over the last six months. Christa Hoskins, a 25-year-old graphic designer in Fort Meyers, Fla., received a whopping $10,000 salary increase. Caroline Powell of Athens, Ga. not only received a 10% pay raise but was also promoted to director of customer service at the startup she’s worked for since 2015.
Is it possible that employers will try to walk back raises if the rule is ultimately blocked? Unfortunately, that may be the case, says Suzanne Boy, an employment law attorney with Henderson, Franklin, Starnes & Holt, in Fort Myers, Fla.
“I do think some employers may decide to walk back pay raises and other changes that were made in anticipation of the rule change,” Boy says. “For the most part, employers will not face legal consequences for rolling the changes back, particularly if the changes were not due to be implemented until [Dec. 1].”
However, if employees who received raises were granted new contracts, it will be much more difficult for their employers to walk back on those promises. Since each state can have different wage laws, she suggests business owners consult with an employment law attorney in their state before moving forward with any changes.
“If the [compensation] changes have already been implemented and the employee is working at the new rate, employers must be more cautious,” she says.
Still, the fate of the overtime laws remains uncertain. The judge’s injunction precedes a final ruling on the law, but it suggests he will rule against it. President-Elect Donald Trump has been vociferously against heightened federal regulations and has vowed to impose new limits on how many new regulations can be implemented — for each regulation approved, at least two must be removed, he’s proposed.
If implemented, the law will dramatically increase the number of workers eligible for overtime pay — by 3.5% — and give business owners the unquestionable challenge of coping with increased labor costs. There hasn’t been an increase to the salary threshold for overtime pay since 2004, when it was raised to $23,660.
Here are 4 ways the new rules might affect your paycheck:
1. Some salaried workers could receive pay raises
Offering raises is a way to avoid tracking the overtime hours required by the new law and keeps budgets manageable. The new rules are more likely to impact salaried employees because they don’t typically work on an hourly basis. Unless employers bump salaried staff above the $47,476 threshold, those workers can claim overtime wages (1.5 times their hourly pay rate) for any work performed after they’ve clocked 40 hours per week.
Brandon Checketts, founder of RoundSphere, a tech incubator based in Athens, Ga., decided to give a handful of his 55 employees a raise this year ahead of the new overtime law. It wasn’t the sole factor behind his decision, but it certainly played a role, he says. Giving people raises was easier than requiring salaried staff to begin clocking their overtime hours.
“All of our [salaried staff] don't really keep track of time at all. So just to maintain that culture, we kind of pushed more people just above the [salary] threshold so that we don't have to start [tracking hours for them],” Checketts says.
2. Companies could begin hiring more part-time workers
In order to avoid pushing too many workers into overtime, some companies are keeping overtime hours low by hiring more part-timers during busy times.
David J. Frohnen, president of Silver State Analytical Laboratories, a full-service analytical chemistry testing laboratory based in Las Vegas, Nev., says his company tends to hire recent four-year college graduates as non-exempt salaried employees.
He’s now considering hiring larger numbers of two-year college grads in full-time hourly technician roles. While they too would be subject to overtime pay, the larger number of hourly technicians could help reduce the overall amount of overtime hours that are accrued.
“We’re changing the culture of our company from a team atmosphere ... to one of ‘put your time in … get your dollars’,” says Frohnen, who is also a member of the National Federation of Independent Business, a group that has challenged the regulation.
3. Salaried workers might have to keep track of their hours
To comply with the new overtime rules, some companies will now require salaried employees who fall below the exempt threshold to clock in and clock out in order to track overtime hours. This can be a tedious process and some business owners, like Checketts, have bristled at the idea of disrupting their company's flexible work culture.
4. Companies may test out the ‘fluctuating workweek’
The “fluctuating workweek” is a strategy that employers don’t typically use often. The new rules could change that, Boy says.
Here’s how it works: An employer and employee agree up front that the employee will be paid a certain salary for a certain amount of hours. That will cover all the hours that they work, which can be 30 hours, 70 hours, or any number.
Then for any hours over 40 per week, the employer is only obligated to pay a half-time rate, as opposed to a time-and-a-half rate, because all of the initial hours have been covered by the salary.
The benefit to the employer is that they have to pay less if an employee works above the agreed-upon hours, Boys explains. The benefit to the employee is that they’re still paid a salary, instead of being converted to an hourly employee, and they still get a bump (albeit a smaller one) in pay if they work extra hours.
Additional reporting by Mandi Woodruff