What you need to know about the overtime rule

On May 18, 2016, President Barack Obama and Secretary Thomas Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations for white-collar workers. The new rule sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is $913 per week or $47.476 annually.

Any salaried employee making less than that figure and working in excess of 40 hours in a workweek is eligible for overtime pay, which is not less than one-and-a-half their regular rate of pay.

The new rule is currently set to become effective on Dec. 1. Future automatic updates to the thresholds will occur every three years, beginning January 1, 2020.

While many marine industry professionals would not qualify under the new rule, office administrators, marketers, HR professionals and other desk jobs in the industry will be affected.

Attempts to block the rule

There are currently several attempts to block this rule from taking effect. The first is a lawsuit filed by a coalition of 21 states, suing the U.S. Department of Labor for inappropriate federal overreach. Republican Nevada Attorney General Adam Laxalt filed the lawsuit in U.S. District Court in Eastern Texas, attempting to block implementation before the regulation takes effect. The lawsuit alleges the rule violates the Fair Labor Standards Act, specifically a 1938 provision that exempts Executive, Administrative or Professional (EAP) employees.

The second is another lawsuit, also in Texas, filed by 50 business groups led by the U.S. Chamber of Commerce. This lawsuit also alleges a violation of Fair Labor Standards Act (FLSA), but on the grounds that the final rule’s salary threshold is “indefensibly high” and that the Labor Department lacked the statutory authority to index the threshold to inflation.

On Oct. 17, a federal court agreed to hear the motion filed by the 21 states asking for a temporary suspension. The hearing is scheduled for Nov. 16.

Congress is making other efforts to modify or block the overtime rule. Rep. Kurt Schrader (D-Ore.) introduced a bill, the Overtime Reform and Enhancement Act, earlier this year to phase in the overtime threshold gradually over three years. It was shown in the House in July but has seen no traction since.

The Overtime Reform and Review Act, S. 3464, was introduced at the end of September by Chairman Lamar Alexander (R-Tenn.), along with Senators Susan Collins (R-Maine), James Lankford (R-Okla.), Tim Scott (R-S.C.) and Jeff Flake (R-Ariz.). The bill, a modified version of Schrader’s bill, attempts to slow implementation, mandates a GAO study and prohibits automatic increases in the salary threshold.

The House did, however, vote 246-177 on H.R. 6094 to delay the overtime rule by six months. Lankford introduced a Senate companion bill, The Protecting Workplace Advancement and Opportunity Act (S2707 and H.R. 4773), which mandates a study and prohibits the three-year update provision.

For those interested in taking legislation action, Will Higgins, public policy manager at the Marine Retailers Association of the Americas (MRAA), recommends looking into the Partnership to Protect Workplace Opportunity, a multi-industry coalition of which MRAA is a member.

Prepare for the inevitable

While business owners should keep an eye on these developments and how they unfold, you need a plan for when Dec. 1 hits because each of these attempts has a low probability of succeeding.

“I’m certainly not surprised to see the lawsuits, but I think (both suits) have a steep uphill climb to succeed,” said Gary Klotz, partner and labor and employment attorney for Butzel Long PC in Detroit told Crain’s Detroit Business. “Both suits are challenging the authority for the Department of Labor to do something they’ve done in the past. If they did it then, they can do it now.”

“I’m telling all my clients that you really shouldn’t bank on this lawsuit changing anything, and just keep preparing for the regulations to take effect,” William R. Pokorny, a partner in the Chicago office of Franczek Radelet, said to XpertHR.

As for legislative efforts, the House bill still needs to pass in the Senate, which is not expected to be easy. And even if it does, President Obama is certain to veto it and the likelihood of Congress reaching enough votes to override the veto is extremely rare.

On Thursday, we will look at how companies can get their staff prepared for the overtime changes.