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How Companies Are Reacting to Overtime Rule Uncertainty

Companies have open questions about the fate of the Obama-era overtime regulations, despite a Texas federal court ruling nixing rules that would have doubled the salary threshold for workers eligible for time and half pay and extended greater pay to millions of more workers.

The answers will hinge on how the U.S. Labor Department moves to revise the Obama administration's rules. Meanwhile, companies—many of which were unable to wait for the courts to resolve the dispute—had to make decisions on whether to comply or keep the status quo and continue to prepare for however the regulations ended up.

“Employers have been left in limbo,” said Lori Brown, president and chief operating officer of Compliance HR at a webinar this week that highlighted issues about the overtime rule. “It’s an ever-changing compliance dilemma.”

The Labor Department under Secretary Alexander Acosta has until Oct. 31 to decide whether it will appeal the Texas ruling that struck down a rule that would have increased the overtime salary threshold for workers from $23,660 to $47,476. The regulation was set to take effect Dec. 1, 2016. Earlier, an injunction blocked it from taking effect. Several states and the U.S. Chamber of Commerce sued to spike the overtime rule. 

The litigation is not settled, said Tammy McCutchen, a principal at Littler Mendelson and former administrator for the Labor Department’s wage and hour division. The Labor Department could still appeal the lower court’s decision to the Fifth Circuit and meanwhile, the agency has sought comments about the future overtime regulations.

“Here’s the big question: Is the 2016 rule finally dead?” McCutchen said. “I’m sorry to say it’s not quite dead yet.”

She said the question of whether the appellate process will start anew if the Labor Department decides to continue to case in the Fifth Circuit is “anyone’s guess.”

survey by Littler Mendelson and Compliance HR found that 50 percent of companies that responded had changed their policies to comply with the 2016 rule. Among those 900 responses, nearly half made plans to comply and did not implement any changes, and 11 percent did not comply with the rule. The companies responded in various ways, either reclassifying employees or raising salaries. Others reduced benefits.

McCutchen was the architect of changes to the overtime threshold in 2004, the last time the salary levels were adjusted. She also has advised the U.S. Chamber of Commerce, the business association that is spearheading the push against the rules.

McCutchen said many companies were puzzled when the new Labor Department weighed into the overtime case this summer. Labor regulators argued not for the specific salary threshold but instead said the agency had the authority to set a number. Acosta has said that a decade is too long to go without looking at how much the threshold should be raised.

Cheryl Stanton, the Trump administration's nominee for the wage-and-hour chief, was grilled about the future of overtime at a hearing this week. She told the Senate Health, Education, Labor and Pensions committee she would determine what the Labor Department’s legal chances would be in any continued court fight over the regulation.

“The question I would ask is whether if we fight this or would we want to promulgate another rule that would more likely withstand litigation that would go into effect faster. Would that get us protections faster?” She added: “I don’t think there is any dispute that it has been a long time since that salary test was adjusted. It’s time to look at it and find a better benchmark today.”

Further muddying the waters, a lawsuit against Chipotle in New Jersey federal court contends the Texas court injunction did not apply to companies but only the power of the Labor Department to enforce the regulation. The suit claims that the company altered employee status in anticipation of the changes in 2016 and then reversed course.

The Littler/Compliance HR survey said the key question for companies focused on what actions employers should take in anticipation of complying with the final rule. Cost estimates were based on the assumption that non-exempt employees, eligible for overtime, would remain salaried.

Of those that complied, 76 percent increased salaries; 7.2 percent increased salaries but reduced benefits; 77 percent reclassified workers; 6.4 percent reduced headcount; and roughly 12 percent raised prices for customers. McCutchen said some companies responded by taking away employees’ work smartphone phones and limited travel time.

“Many employers were making changes to deal with the cost that were not beneficial to employees,” she said.

Inside the Beltway, the regulatory ball is rolling with stakeholders and observers proposing specific changes. The comment period closed Sept. 25. One big question will be: What should the salary level be? There were 157,587 total responses.

Among employers, most supported a modest increase to the minimum salary level. Few on the employer side support multiple salary levels or automatic updates to the salary level.

The Labor Department is expected to post a notice of rulemaking, and the administrative process to craft a rule will not be short—perhaps extending well into next year.

In the meantime, McCutchen offered this advice to employers: “Even though we have some time, you should continue to prioritize compliance with the 2016 final rule. There will be an increase coming, it’s just a matter of how high. That’s my bottom line here. Employers need to keep their focus.”

Contributing Author

Erin Mulvaney

Erin Mulvaney writes for Law.com, sister site to BenefitsPRO.com.

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