Since a November 2016 Texas federal court injunction against planned changes to Fair Labor Standards Act (FLSA) overtime rules, the rules adjustments have been in limbo. The proposed changes would have made an estimated $4.2 million working Americans newly eligible for mandatory overtime pay, according to non-partisan think tank the Economic Policy Institute.
Federal overtime standards lagged behind inflation for decades. A 2005 adjustment to the exemption rules was a short-term fix, but in 2016, the salary threshold for overtime eligibility again fell below the federal poverty level, per recent Department of Labor (DOL) and U.S. Census Bureau data. (Federal poverty level for a family of four is $23,660 in annual income.)
On August 31, U.S. District Judge Amos Mazzant officially ruled that the overtime changes are invalid; the DOL exceeded its authority in choosing which employees were eligible for pay raises based on salary alone.
All employers heaving deep sighs of relief because they took no steps to meet the proposed rules changes, not so fast… the DOL is still considering changes to overtime rules, which remain sadly out of date. Under a new request for information (RFI), the DOL is inviting comments around adjusting white-collar exemption requirements and the duties tests long used to determine which employees are or are not eligible for mandatory overtime. The RFI expires on September 25, 2017.
Many policy advisory groups believe the overtime standards should be revised, but perhaps not to the levels recommended by the Obama Administration’s DOL. It’s worth noting that the proposed change to the white collar exemption threshold was actually adjusted downward ($47,476.00) from where overtime exemption would have been ($50,440.00) had the original rules kept pace with inflation. And those levels would have been reached in 2012, so the 2016 adjustments still lagged behind inflation. Any new adjustments are likely to be set far lower than the 2016 recommendations.
Median Income Up, But Wages Still Stagnant
In the wake of Census Bureau data stating that median household income increased for the second straight year, the debate around overtime pay may seem less urgent. But the Census Bureau cautioned that their reporting includes a 2013 change in methodology that tends to increase measured income. Without that change, median household income levels would still be tracking below those of 2007, prior to the Great Recession. And data shows disturbing income inequality trends: the poorest 1/5th of households are earning less than in 2007, while the wealthiest 1/5th enjoyed comfortable increases in earnings over the past decade. African-American households are among those seeing income continuing a steady downward slide.
Median income has risen because the job market is stronger, more people are working again, and the stock market is booming so investment income has improved. All of those factors can change in the blink of an eye. Meanwhile, employers are not rushing to share the improved economic outlook with employees; wages are not increasing, and economists are concerned that stagnating wages will slow economic growth. On the plus side, more Americans now have health insurance, and unemployment is at a 16-year low, at just 4.4% nationally—ironically, leaving little room for growth. Also, some areas of the nation still have higher unemployment rates and little job creation. In short, minimum wage and overtime revisions are still needed.
Where Do Employers Go from Here?
Under new Secretary of Labor Andrew Acosta (purportedly a toe-the-administration-line type of administrator), employees cannot expect great changes to national employment law and policy, and may even see some retrenching of workplace protections under Trump Administration deregulation goals. That leaves employers in the catbird seat, with the challenges of treating employees fairly while balancing their own growth and profit goals.
The IRS dislikes misclassified employees, and audits have targeted agencies in the past because of our use of freelancers and the industry-wide acceptance of routine overtime. Our industry has long treated overtime as a given, but many agencies have adjusted to reframe overtime from “expected,” to “only when unavoidable.” That’s a good thing for employees and employers. If you instituted Autumn 2016 changes to how you classify employees and pay overtime, consider it essential HR management that puts your agency in better shape for whatever changes are to come—an investment in the future.
We’ll keep an eye peeled for DOL overtime updates. In the meantime, block in some time to review employee benefits and payroll. You want to stay competitive to retain and attract good people.