By Drew M. Smith
In May 2016, the US Department of Labor, at the direction of President Obama and former Secretary Labor Thomas Perez, issued a new Final Rule relating to updating and modernizing the provisions of the Fair Labors Standard Act (FLSA). Specifically it addressed how employees are to be compensated. The Final Rule changed how overtime is compensated. Before the update was proposed, the maximum a worker could make was $23,660 annual income or $455. The new levels are $47,476 and $910. These new regulations were supposed to go into effect on December 1st 2016.1
However, 10 days before they were supposed to go into effect, a Texas state judge issued an injunction to stop the Final Rule from taking hold. This was done in response to filings on behalf of business owners in 21 states. Their filing alleged that the Department of Labor overreached on making the rule by setting the threshold too high. They were further concerned about the adjustments that the rule would enforce every three years. As a result, the previous rules are still in effect until the case is heard.
Though there is a chance the injunction could be reversed, the prevailing thought is that the rule will be removed before the case is heard. President Trump has indicated that he will reverse the Executive Order. With President Trump’s reversal of the executive order, it removes the need for the courts to hear it.
In a recent survey of 500 owners, there is a wide variety of opinions. The majority, about 40%, don’t know what will happen, while 25% believe it will be revised. However 29% truly believe Trump will undo the rule or water it down. Finally, just over 5% believe the rule will stay as is which has led to the confusion of many.2
Despite the uncertainty at the federal level, it should be understood that states still states have their own individual overtime rules. Two states in particular have increased their compensation in conjunction with the Final Rule and their increase in minimum wages. In California, employers of 26 or more people must pay certain exempt workers double the wage or $840 in response to the increase in minimum wage to $10.50 an hour.3 In New York, it will increase to $15.00 by the end of 2018. The amount of time this change will occur depends on where the company is based and how many employees they have.4
Even though the federal law is currently stalled through a court order, companies still must follow their individual state guidelines when it comes to minimum wage, classification and overtime benefits. As a general rule, whichever law is more generous to the employee is the one that is followed.