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Organizations taking action against FLSA overtime change

Posted on Thursday, November 03, 2016

Time & Attendance Software: Anti-FLSA Overtime Rule | Time Rack

Companies and their human resources and benefits teams have to be on their toes at all times to maintain compliance. There are always new or amended regulations unveiled, and failing to adhere to those rules can result in costly consequences for businesses.

One of the most pressing pieces of legislation on executives' minds in the recent months has been the change to the Fair Labor Standards Act concerning overtime pay. Time Rack  has a breakdown of the situation, including the most recent updates organizations should be aware of.

President Obama made updating the FLSA's overtime rules his mission.President Obama made updating the FLSA's overtime rules his mission.

A Presidential Memorandum
When the Fair Labor Standards Act went into effect in 1938, it gave the majority of U.S. workers the ability to earn minimum wage as well as time-and-a-half pay for operating more than 40 hours in a week. A certain number of employees were exempt from this rule due to their salaries and the duties associated with their position. The federal government soon learned the wage threshold they put into place was decimated by inflation annually. To make up for this, the law was updated in the 1970s and remained that way until 2004 – the last time the FLSA's overtime mandate was updated.

In 2004, the salary cap was set at $455 per week, or $23,660 per year, and only provided overtime pay to about seven percent of full-time salaried workers, according to the U.S. Department of Labor.

It took 10 years, but President Obama signed a presidential memorandum for that purpose in 2014. After receiving over 270,000 comments in response to the proposed legislature and taking that feedback into great consideration, the federal agency agreed to a final rule.

"The Final Rule nearly doubles the former salary threshold."

The Final Rule
President Obama announced in May 2016 that the DOL had finalized their changes to the overtime guidelines. As a result, 4.2 million workers will be eligible for additional pay. The rule increases the salary threshold to $913 per week, or $47,476 per year.

To account for inflation, the DOL's final rule also included a provision which will update the wage cap every three years starting January 1, 2020. These amendments aim to raise the threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region. For 2020, the compensation cap is estimated to be $51,168.

This new regulation is scheduled to go into effect on December 1, 2016. There is a fair amount of push back against this deadline, however.

Suit aims to block new rule
On September 20, representatives from 21 states filed a lawsuit against the Obama administration is overstepping its boundaries and limitations to pass the law, according to The Washington Post. Why file in Texas, you ask? The district is known as a "rocket docket" court, meaning cases move through it much more quickly.

The U.S. Chamber of Commerce and more than 50 other business groups also took legal action against the mandate the very same day. The independent organizations fighting the change believe the amendment is not only being implemented too quickly, but also that the updated threshold is too much of an increase. As a result, the plaintiffs assert the FLSA's new rule will result in reduced hiring practices or businesses having to lay off employees.

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U.S. House of Representatives steps in
Although the lawsuit hasn't reached its conclusion, the U.S. House of Representatives also got in on the action. On September 28, a GOP-backed bill – The Regulatory Relief for Small Businesses, Schools and Nonprofits Act – was passed by one-half of Congress to delay the overtime rule from going into effect in December, according to The Hill.

The goal of this legislation is to push the effective date back six months, meaning companies would have until June 1, 2017 to become compliant. President Obama, in a Statement of Administration Policy, has already threatened to veto the bill, which still has to go through the Senate and be signed by the President to go into effect.

Next steps for businesses
Since all of these actions are still in process and decisions remain up in the air, it's crucial for organizations and their leadership teams to prepare for a December 1 effective date. The President's opposition to the House-passed bill shows that even if the legislation makes it to his desk, he will most likely decline.

Failing to prepare appropriately could leave companies playing catch-up, resulting in hefty compliance penalties. HR teams should inform employees of their rights due to the new rule, and assess next steps to keep costs manageable. The Society for Human Resource Management suggested businesses analyze the difference in expenses related to reclassification of workers versus salary increases to make more workers exempt from overtime.

Planning ahead will ensure organizations, executives and employees are educated on important information and have implemented any necessary company changes ahead of the Dec. 1 deadline.

Time Rack offers businesses the time and attendance software they need to track and manage employees’ hours and wages, especially as they relate to overtime compensation.

Contact us to learn more about the FLSA overtime rule