Undoing Overtime Pay Changes Could Be Tricky

Some employers may hold off on, or roll back, changes to comply with the new rules

By Joanne Sammer November 30, 2016
Undoing Overtime Pay Changes Could Be Tricky

When a federal judge in Texas placed an injunction on the new Department of Labor (DOL) overtime regulations, the action threw an untimely wrench into employers' months-long efforts to comply with the new rules—leaving many in a difficult and confusing position. 

The Justice Department appealed the injunction on Dec. 1, but many believe the Trump administration is unlikely to pursue the appeal.

The DOL regulations, among other things, would have raised the salary threshold for exempt employees from $23,660 to $47,476 with increasing adjustments every three years. Employers most affected are those that had already begun making changes and, more importantly, communicating those changes to employees.

Unless exempt, employees covered by the Fair Labor Standards Act must receive at least time and one-half their regular pay rate for all hours work over 40 in a workweek.

FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Overtime Rule Blocked: Now What?
· Compliance Checklist · Infographic

From the employers' perspective, the timing of the injunction could not have been worse. The regulations were due to take hold on Dec. 1, and the injunction came down on Nov. 22. That has given employers little time to react and develop a plan to respond. 

Indeed, when the injunction was announced, many had already revised their pay practices and modified their payroll systems to begin paying employees under the new regulations.

Between a Rock and a Hard Place

Affected employees have expressed widely differing views on being shifted from exempt to nonexempt status. Some workers welcomed the prospect of now being paid for overtime hours worked; many others felt demoted when told that, going forward, they would be paid hourly instead of receiving a salary and must stop working at 5:00 p.m sharp unlike their "professional" colleagues. 

Still others were given pay raises to move them above the higher exempt-employee salary threshold. In some cases, that caused pay structures to be revised throughout the organization—or caused resentment when some employees were given a raise but others, already above the threshold, were not.

Regardless of the future legal status of the DOL regulations, the changes may end up becoming fixed in many organizations simply because many employers are uncomfortable walking them back for fear of damaging employee morale and engagement—at least among those who welcomed receiving overtime pay or were given an upward salary adjustment.

Said Katie Busch, SHRM-SCP, lead consultant with HR Compensation Consultants LLC in Boynton Beach, Fla., "If employers have already told workers about pay increases or new overtime eligibility, how do they go back and say, 'Oh, sorry, we don't have to do that anymore'?"

If employers had already altered their payroll systems when the court injunction came down, they may have no choice but to issue at least one paycheck calculated using the new overtime regulations.

[SHRM members-only toolkit: Calculating Overtime Pay in the United States]

Even if the employer allows an employee who is newly classified as nonexempt to keep any overtime paid for this period, changing that employee back to exempt status could be difficult. To some affected employees, the situation could become a constant irritant whenever they work more than 40 hours in a given week and don't receive overtime pay.

There is another wrinkle for employers. Some state and local laws require advance notice of any changes to employee pay. "If an organization has already announced changes to pay because of the regulations and decides to reverse them, they will have to go through another notification period before doing so" under these laws, said Laura Rickey, a director with Willis Towers Watson in Dallas.

Employers that decide not to reverse changes that were made to comply with the DOL overtime rules can still manage the situation. Taking steps to minimize overtime for employees newly categorized as nonexempt will be a key way to control additional costs from these changes.

[SHRM members-only how-to guide: How to Calculate Overtime on a Semi-Monthly Pay Period]

There Are Options

Some employers may hold off on, or roll back, changes to comply with the new rules while they wait to see how the situation is resolved, Busch noted. These employers are likely to have a large number of exempt employees who were scheduled to become nonexempt and eligible for overtime under the halted regulations. In these cases, any delay in complying has the potential to save the employer a considerable amount of money in overtime payments.

Smaller employers, however, may be better positioned to back away from any announced changes. "Smaller employees that have direct contact with their employees can have more pointed conversations about what this is all about and what it means," said Rickey. "These conversations can focus on letting the employees know that there's been a delay [in implementing the overtime regulations] so the company is waiting to see how this plays out." Such frank, one-on-one discussions can help employees understand the employer's actions.

Suzanne Lucas, who blogs as the "Evil HR Lady," wrote in an Inc. column that "If your employees welcomed the change, it might be worth it for the morale boost to keep it in place, but if, like so many people, they feel demoted and demeaned by it, take advantage of the injunction and keep these employees as exempt employees."

Bear in mind, also, that whatever happens with the DOL overtime regulations, "employers still have to comply with the duties requirements for exempt employees," Busch said.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Online Article:

Overtime Rule Hang-Up Requires Careful Communication About Pay Decisions, SHRM Online Employment Law, December 2016

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