The white-collar overtime rule that the Obama administration had set to go into effect in December remains on hold, and some employers and their counsel here don’t see it coming back soon.
“As a practical matter, I think it’s over for a while,” says William Symmes, chairman of the labor and employment group at Spokane law firm Witherspoon Kelley.
The rule, which would have raised the minimum annual salary threshold for exemption from overtime pay to $47,476, was blocked by an injunction issued by a U.S. District judge in Texas 10 days before it was to go into effect, on Dec. 1.
The new threshold would have more than doubled the current minimum salary, which was set in 2004 at $23,660 for overtime-exempt employees.
Most employers planned to hold off implementing the rules until closer to the deadline, and following the injunction, most have decided not to change employees’ exempt status, Symmes says.
A few employers, though, had restructured their payrolls early to put salaried people who didn’t meet the new salary threshold on hourly status.
Those employers might not be in a rush to switch employees back to the old status, Symmes says, adding, “One said, ‘It’s too late now.’”
On Dec. 1, the U.S. Department of Labor filed a fast-track appeal of the injunction in the 5th U.S. Circuit Court of Appeals. Last month, however, the U.S. Department of Justice asked for a 30-day extension to file briefs on behalf of the Labor Department, meaning the earliest oral arguments could be heard would be in March, if the appeal were to go forward under the Trump administration.
Paul Agather, vice president of Spokane-based Parts Wholesalers Inc., has been a critic of the overtime rule as it was proposed, although he also thinks the current exempt threshold is set too low at $455 a week.
“I think most business leaders would agree that is a draconian amount,” Agather says. “It hasn’t moved much and it should be adjusted, but you don’t double that in one year.”
Speaking in general, he says it should be a promotion that could lead to further advancement when an hourly employee is given a salaried position such as an assistant manager, he says.
“People like being put on salary,” Agather says. “It says, ‘My employer trusts me.’”
The overtime exemption can be abused though, he says.
“We hear a lot of assistant managers at other companies will work 60- to 80-hour weeks,” Agather says. “That makes it less than minimum wage at that point.”
The Labor Department had claimed that the new rule would increase the wages or reduce excessive work hours of 4.2 million employees, including 76,000 workers in Washington state.
Agather asserts, however, that few people around here would suddenly make a lot more money under the new overtime rule. Rather, it would have been more likely that they would be converted from salary to a comparable hourly compensation.
That’s a change most salaried employees weren’t looking forward to, he contends.
“Business owners tried to explain to employees that they were going to make the same amount of money. It was just how it was being calculated,” he says. “But employees feel more restricted and monitored. It feels like they’re being demoted.”
Agather says the overtime rule wouldn’t have had much effect on Parts Wholesalers, which has about 100 employees total at its warehouse downtown and at nine Motion Auto Supply retail stores in the Inland Northwest.
“We have people on salary, but once they step outside of their normal duties, we pay them overtime anyway,” he says. “If we have someone from building maintenance we need to work the counter on a Saturday, we pay them overtime because they’ve migrated to a different category.”
Though the Obama-backed rule is on hold, it has made business owners and managers more aware of the existing duties test for exempt employees.
Salaried employees must have executive, administrative, or professional duties to be exempt from overtime.
“Just because they’re on salary doesn’t make them exempt from overtime,” Agather says.
The Arc of Spokane, a nonprofit with a workforce of 250 that advocates for people with intellectual and developmental disabilities, had planned to convert 16 management positions to hourly positions, but suspended most of that plan when the injunction was issued, says Executive Director Sima Thorpe.
“We do understand the intent of the rule,” Thorpe says. “But it came down to affordability.”
The Arc had estimated overtime costs under the new rule would have increased its annual expenses by $50,000 to $75,000.
She says a couple of vacant positions had been reclassified as nonexempt in anticipation of the new rule.
“Those positions not changed are still exempt pending the outcome of the lawsuit,” she says.
Thorpe says she hadn’t heard from any salaried employee that wanted to be reclassified as an hourly employee.
“The employees I heard from personally saw a loss of flexibility under the rule,” she says. “Most are relieved to stay exempt.”
Angela Hayes, in-house counsel for Associated Industries of the Inland Northwest, a Spokane-based employer consulting services provider, says most employers were holding off on compliance with the new rule “until the last minute,” although some client businesses that had employees close to the new threshold implemented the standards prior to the injunction.
“We do have businesses that already put their new salary levels into effect to maintain the exempt status of employees, particularly those who travel a lot,” Hayes says.
She says some of those employers likely will keep salaries at the new level.
Other employers, though, were planning to do away with salaries as compensation for some positions.
“The financial implication was so great that some employers couldn’t afford exempt employees,” Hayes says.
One of the biggest problems with implementing the rule is to move people from exempt to nonexempt status, she says.
“An exempt employee has the opportunity to take kids to soccer game yet still be working and checking emails,” Hayes says. “How do we cut them off from that or tell them how to keep track of that time? It’s very challenging.”
The judge who issued the injunction barring implementation of the new rule determined the Labor Department likely exceeded its authority by creating such a high minimum salary threshold that does away with the duties test for a large number of currently exempt employees, Hayes says.
The Trump administration could order the Labor Department to stand down as far as proceeding with the appeal, she says.
A third party, however, wants to take over the appeal if the Labor Department withdraws.
Texas AFL-CIO, a state federation of labor unions, has filed a motion to intervene.
“If granted, the AFL-CIO could step in and pursue the appeal,” Hayes says.
Hayes says many employers would support a moderate raise in the salary threshold.
“I think in the future we will see some increase, but it’s not going to be the $913 a week that’s part of the current legislation,” she says.
Symmes says the current political climate doesn’t support the rule.
“I wouldn’t be surprised if Trump tries to stop it,” he says.
It could come down to a showdown between the Trump administration and the National Labor Relations Board, Symmes says.
“It will be interesting to see what Trump can and cannot do,” he says. “My sense is if the Trump administration didn’t want to enforce the rule, it would dictate to its agencies not to.”
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