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The FLSA rule is “blocked”…now what?

Right before the effective date of December 1, 2016, the Department of Labor’s final rule updating overtime regulations, was blocked by a Federal Judge in Texas. The Final Rule makes significant changes to salary threshold requirements; according to the Department of Labor (DOL) website:

“The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.”

Now the rule is being legally reviewed. In the meantime, what are employers to do?  If this rule does go into effect later, the DOL is allowed to retroactively enforce it with the original December 1, 2016 effective date.  If this happens, any employee paid below the salary threshold would be entitled to overtime pay for the hours worked in excess of 40 hours in any workweek after December 1, 2016. Because of this possibility, however remote, consider these recommendations:

  1. Employers should be prepared to comply with the Final Rule. Simply put, this means if there are any employees currently exempt from overtime (aka being paid on a salary basis) and making less than $47,476 annually, employers should be accurately tracking actual hours worked for these individuals. Tracking all hours worked will allow accuracy in the event you owe overtime pay to the employees in question if the Final Rule is upheld and retroactively effective.
  2. Due to a little known Nevada regulation, employers are required to track actual hours worked for every employee. This is not a regulation that gets enforced, but it could come into play if there is a dispute about how wages were paid. Therefore, it is recommended to track actual hours worked for every employee.
  3. Do not reverse any pay increase already given to employees because of the devastating effect on morale. Recently, an employee told me about a situation in which his company implemented an increase, took it back, implemented it again and then took it back again. This created distrust and discomfort on his part.

Even if you expect the rule to be discarded, be prepared for it to be implemented retroactively. It’s never too late to start tracking hours worked for exempt employees.

 – Melissa Marsh is an HR Consultant and Owner of HRinDemand; Director of Workforce Readiness for Northern Nevada Human Resources Association Board of Directors.

First published in the Reno Gazette Journal on January 24, 2017.

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