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Overtime Law Suspension Puts Companies, Employees in Limbo

The new overtime rule was set to go into effect this Thursday, but an eleventh-hour injunction by a federal court in Texas has hit the brakes on the changes across the country.

Last Tuesday, U.S. District Judge Amos L. Mazzant of the Fifth Circuit Court issued a national injunction on the rule, which would require salaried employees who are paid at least $47,892 a year to be exempted from being paid for overtime hours, more than double the old threshold of $23,660. The threshold would also rise at a prescribed rate every three years.

The injunction was a response to a suit filed months ago by 21 states and more than 50 business groups protesting the change, citing irreparable damage from having to pay a large portion of workers more either in terms of a salary raise or for overtime costs, and having to lay off some employees to be able to pay others.

In his ruling, Mazzant wrote that the concerns of the states and business groups were founded, that the Department of Labor overstepped its bounds by setting a new threshold and a scheduled threshold increase, and that the injunction should apply nationwide as per precedence from an earlier employment case.

The injunction means a pause button has essentially been hit on the rule change, says Monica Whalen, Utah president of the Employers Council, and it will likely be months or even years before someone presses either play or stop. The ruling’s resolution could come in the form of Congress picking up the issue and passing legislation—potentially even before it finishes making its way through the judicial system—or there are a few avenues that would result in it being decided by the U.S. Supreme Court, she said.

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Meanwhile, the ruling has left some employers and employees in limbo.

“From the employers’ perspectives, it’s frustrating because it came so late in the game. Many employers had already implemented their strict strategies for complying to the rule, made adjustments to the payroll system, reclassified employees, etcetera,” Whalen said. “So to have this put on hold at such a late date is a bit frustrating, but I think employers are seeing this as good news, because they were concerned about the additional labor costs that would have come with complying with the rule.”

Employee reaction tends to be split on the rule change delay. Some employees are frustrated to not be making more money, either from a raise or overtime, but others, such as low- and mid-level managers, viewed the reclassification from salary to hourly pay as a loss in stature.

“From the employee’s perspective, many would see this as a loss of an opportunity to bring home more take-home money, either through not receiving a raise or not being eligible for overtime, but many other employees who were going to be reclassified welcome this news because now they don’t have to keep track of their time and it’s just business as usual in terms of their job duties and standing within the management team,” Whalen said.

If a company has already readjusted payroll in anticipation of the change, and particularly if employees have been told they’ll be getting a raise come Dec. 1, Whalen encourages those employers to keep the changes. If a company has only announced upcoming reclassifications, however, Whalen said those changes can be kept on the back burner until the issue is resolved.

“If you already announced a salary increase to comply with the law, you should, in most cases, go ahead with that, because it could be so detrimental to morale to pull that back,” she said. “The other bit of advice we’re giving is if you have announced if certain employees were going to be classified as nonexempt and thus classified to get overtime, if you haven’t already implemented that, you may want to put that on hold with the clear message that that’s up in the air and it may happen in the future, but for now we’re going to wait and see.”