What is the bottom line regarding the federal overtime ruling that was supposed to take effect on December 1, 2016? The fact is that the new rules regarding overtime are not in effect, as of the writing of this article. About a week before the new regulations were slated to take effect a Texas federal court judge issued an injunction which halted the new federal overtime rules. While the timeline for the appeal has been expedited in the United States Court of Appeals for the Fifth Circuit per Department of Labor request, it could still be weeks before a clear decision is made. Employers who raised salaries to meet the proposed threshold in anticipation of the new regulations can reassess those decisions (or wait until the courts come to a decision) to make any further changes. Those employers who did nothing prior to the first of December should seek legal counsel for any legal advice but will most likely continue to wait for a decision one way or the other. Due to an expedited timetable of the DOL’s appeal of the November preliminary injunction changes could present themselves as early as this Spring. However, delays as a result of further actions from the Texas court are always possible.
There is further uncertainty due in part to the transfer of power at the highest level of US government. Although President Trump would not be able to simply repeal a decision made by the appeals court to enact the proposed higher threshold, he could still affect new changes via his administration. Whether this would mean proposing new rules following a decision or working with congressional Republicans to make changes to the existing rules remains to be seen.
Many companies had raised salaries, in anticipation of the new law going into effect by the end of last year, to reach the $47,500 threshold. Reaching this threshold made these employees exempt from the new regulations. Be warned, many companies are seeking to avoid overtime payments by converting eligible employees to an exempt status. While this may seem like a ‘quick fix’, employers misclassifying employees as exempt can expose themselves to substantial risk, so it is advised that this approach be reviewed by legal counsel and only leveraged when appropriate. As an alternative to these two approaches, many employers are evaluating overtime utilization across their permanent and contingent workforces to calculate and compare costs by role and location. Were this law to go into effect, it will result in the majority of administrative, call center, and low-level operations roles being more cost effective as contingent workers than as permanent employees. While this varies by organization and overtime patterns, in these cases employers are shifting hiring plans in favor of more contingent headcount where it makes sense to do so.
Many employers will face higher payroll costs either due to increased overtime rates for employees below the threshold salary or increased salaries to put employee salaries over the new overtime threshold. Determining which option is more cost-effective will rely on several factors including the number of employees, expected overtime hours worked by those employees and whether or not those two metrics change seasonally. However, there is room for organizations to compensate by making changes to paid time off, incentive plans, benefits and bonus plans. Plans are to reassess the salary threshold every three years. Based on projections, it is expected to rise to $51,000 by Jan. 1, 2020, after the initial update.
Despite the delay affecting the federal threshold changes some states have taken matters into their own hands and affected changes to statewide minimum salary thresholds for exempt workers. Effective December 31, 2016, the New York Department of Labor amended its minimum wage rules to increase the minimum threshold salary that employers must pay administrative and executive employees to maintain their overtime exemptions. This will have a significant impact on New York employers’. New York’s statewide minimum salary threshold for exempt workers was $675 per week (or $35,100 annually) prior to this change. Compare that with the current $455 federal minimum weekly salary threshold ($23,660), and it was already significantly higher than what was required federally. Now, however, New York’s minimum exempt salary not only varies by geographical location and the size of the employer but will increase on an annual basis over the next several years.
- Large employers (11 or more employees)
- As of 12/31/16: $825.00 per week ($42,900 annually)
- As of 12/31/17: $975.00 per week ($50,700 annually)
- As of 12/31/18: $1,125.00 per week ($58,500 annually)
- Small employers (10 or fewer employees)
- As of 12/31/16: $787.50 per week ($40,950 annually)
- As of 12/31/17: $900.00 per week ($46,800 annually)
- As of 12/31/18: $1,012.50 per week ($52,650 annually)
- As of 12/31/16: $750.00 per week ($39,000 annually) on and after 12/31/16
- As of 12/31/17: $825.00 per week ($42,900 annually) on and after 12/31/17
- As of 12/31/18: $900.00 per week ($46,800 annually) on and after 12/31/18
- As of 12/31/19: $975.00 per week ($50,700 annually) on and after 12/31/19
- As of 12/31/20: $1,050.00 per week ($54,600 annually) on and after 12/31/20
- As of 12/31/21: $1,125.00 per week ($58,500 annually) on and after 12/31/21
- As of 12/31/16: $727.50 per week ($37,830 annually) on and after 12/31/16
- As of 12/31/17: $780.00 per week ($40,560 annually) on and after 12/31/17
- As of 12/31/18: $832.00 per week ($43,264 annually) on and after 12/31/18
- As of 12/31/19: $885.00 per week ($46,020 annually) on and after 12/31/19
- As of 12/31/20: $937.50 per week ($48,750 annually) on and after 12/31/20
The above illustrates how difficult it may be for some businesses to navigate the new regulations and make the appropriate changes to their business practices in order to limit exposure. For example, if a large organization had already upped salaries of New York based workers to classify certain employees as exempt they are likely in compliance with New York’s current minimum wage threshold. However, if not, it would be paramount to act quickly to make sure that any employees who are not exempt based on the above information are now paid overtime. Small New York State businesses will be less exposed at least until either the federal overtime regulations pass or until December 31st, 2018 when the next New York State increase goes into effect.
What has happened in New York may, however, set precedence for other states determining their own overtime thresholds whether the federal regulations are appealed or dismissed. This would make navigation the engagement of contingent workforces throughout the United States even more challenging for employers with varying minimum wage regulations as well as benefits requirements and separate state and municipal laws regarding paid sick leave and disability becoming more common.