By now, it is likely that you have heard that the US Department of Labor passed a rule that proposed to make millions of workers subject to overtime pay last year. The rule, which was to be in force as of Dec 1, 2016, states that employees earning a salary up to $47,476 a year must be compensated time and a half overtime pay if they work over 40 hours during a week. This is a significant change from the current threshold for overtime pay of $23,660. The rule includes an automatic update of the threshold salary every three years. (Next one is Jan 1, 2020).
For rental companies, the adverse impact on their business forced owners to look at remedies to counteract the effect on their costs, and many implemented it before they knew of the injunction:
- Change salaried workers to hourly employees.
- Limit employees to an 8 hour day.
- Hire part-time workers to fill in the gaps.
- Lower employees’ hourly rate to offset overtime that they might earn.
- Raise salaries above the $47,476 threshold.
Many affected by this regulation have been writing letters to Congress to protest what they see as government rules that are detrimental to small businesses. In November 2016, just before the deadline, a Texas judge issued an emergency request that resulted in a preliminary injunction to delay implementation. Employers breathed a sigh of relief, as the Department of Justice gained more time to consider the impact on 4.2 million employees and estimated costs of $295 million to businesses. The ARA (American Rental Association) joined with other organizations to litigate against the regulation.
Though the injunction temporarily blocked the law from going into effect, some employers had already told their employees they would receive a pay raise to get them above the threshold of $47,476. Employee morale can suffer when they anticipate an increase that never happens, so employers need to think through how they will handle employee morale. They must weigh the added overhead cost vs. the possible loss of good employees.
When a new Department of Labor Secretary gets confirmed, either the injunction against it will stand, or be overturned. According to employment law firm, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., there is a risk to employers if the regulations are upheld, and enforced retroactively.
If that happens, employers are responsible for overtime pay to employees under the rules starting December 1, 2016, and would be a disaster for most small businesses.
Regardless of the outcome, the wisest move may be to keep accurate records of hours worked by all salaried employees to make it easier to defend, if needed. The recordkeeping burden is up to the employers. Ignorance of the law, even when the law is confusing, does not absolve consequences.
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