On November 22, a Texas judge issued a preliminary injunction blocking changes to the Fair Labor Standards Act just days before they were to take effect on December 1. The new legislation would have raised the salary threshold for which employees could receive overtime pay from $23,660 to $47,476. The update was meant to protect white-collar employees who work 40-plus hours a week but earn small, fixed salaries.
After 21 states and several business-oriented organizations challenged the law, the judge agreed to temporarily halt its enactment while determining its merits. With the provision on hold, a few scenarios are possible:
The Department of Labor may successfully defend its position, asserting its authority to establish such a high salary threshold.
The Trump administration may decide not to defend the legislation, which would likely kill it.
Trump may agree to a more modest salary threshold increase.
Many employers have already directed considerable resources toward ensuring compliance with the provision. Some have resorted to raising pay above the threshold, consigning workers to hourly-wage status, or eliminating positions to minimize the financial impact of the regulation. In this uncertain climate, you may be unsure about what to do next.
For companies that have already gone to great lengths to ensure compliance, returning to the status quo may be almost impossible. HR departments may be advised to implement the new salary threshold merely because employees have been expecting it. If increases have been promised, reverting to the old standard will negatively impact workplace morale.
If you have not yet reclassified employees to determine who is eligible for the increased salary threshold, you may want to wait for the litigation to conclude before you reassign job duties and adjust pay scales. However, since it's not guaranteed that the law will be struck down, you should have a plan in place in case it's upheld.
Whatever you decide, clear communication with employees is critical. Failure to be transparent about payroll policies will leave workers angry and frustrated, perhaps even leading some to resign. Employers and HR staff need to strategically explain compensation practices, discussing the principles behind their decision and refraining from political discourse.
Advocates for small businesses note that the overtime increases would have had a negative impact on small companies and the economy in general, as many employers would have eliminated jobs to minimize additional payroll costs. President-elect Trump has indicated that if the FLSA update is enacted, he will support an exemption for small businesses.
Supporters say the DOL acted within its bounds and that the overtime rule would have provided just compensation for those working more than 40 hours a week. However, the Congressional Budget Office reports that the legislation would have cost more than $1 billion, not to mention significant workflow disruptions. Proponents of the injunction point out that complying with the law would have had a detrimental effect on career advancement opportunities, electronic remote access to employment, and workplace flexibility.