The U.S. Department of Labor (DOL) recently updated its federal
overtime regulations, in an effort to extend overtime wages to
workers not currently covered under the Fair Labor Standards Act
(FLSA). The U.S. District Court for the Eastern District of Texas
recently enjoined the Department of Labor from implementing the
regulations on Dec. 1, 2016, as planned. As the litigation
continues, it is uncertain whether the court will ultimately permit
the DOL to implement its updated regulations. While the parties
continue to litigate the matter, attorneys representing employers
should take this opportunity to advise their clients on strategies
to avoid the updated regulations' anticipated economic burden,
should the courts ultimately rule that the DOL may implement
them.
The updated regulations, if implemented, would benefit
some employees, while significantly burdening employers.
The DOL's updated regulations would raise the mandatory minimum
salary for exempt workers from $455 per week (or approximately
$23,600 per year) to $913 per week (or $47,476 per year). If the
DOL ultimately implements its updated regulations, employers who
pay their salaried employees less than $47,476 per year would
either have to increase these employees' salaries, or re-classify
the employees as non-exempt. Under the Fair Labor Standards Act,
employers must pay all non-exempt employees overtime, at a rate of
one and a half times their regular hourly rate, for each hour they
work over forty (40) in a single week. The DOL's updated
regulations, if implemented, would require employers to incur
significant expense to either increase employees' salaries to
maintain their exempt status, or to pay overtime to employees
rendered non-exempt.
Indeed, the DOL specifically updated its regulations in an
effort to provide more workers with additional income, whether
through increased salaries or new overtime benefits. The
regulations, once implemented, have the potential of benefiting
many employees, as the DOL estimates that the changed regulations
will impact 4.2 million workers nationwide, with 84,000 of these
workers in Massachusetts alone.
At the same time, however, the updated regulations, if
implemented, would significantly burden employers. The DOL has
estimated that the updated overtime regulations would require
employers nationwide to pay their employees an additional,
estimated $1.2 billion in wages per year. The economic impact of
the updated regulations, if implemented, would go far beyond
employers' new obligations to pay employees additional wages,
however. The DOL has estimated that, nationwide, employers would
incur an additional approximately $295 million in non-wage related
costs (including adjustment costs, management costs, and regulatory
familiarization costs) each year for the first 10 years if the
regulations were to go into effect.
If the updated regulations are ultimately implemented,
Massachusetts employers who fail to comply will likely face
significant penalties including both mandatory treble damages and
mandatory reasonable attorneys' fees awards under the Massachusetts
Wage Act. Further, to the extent that Massachusetts and federal
governments' recent heightened focus on enforcing wage laws to
deter wage theft continues, employers who fail to comply with the
updated regulations, once implemented, will likely also continue to
face additional, significant economic fines and penalties issued by
the government.
Massachusetts employers may take several steps to ensure
compliance with the updated regulations, while protecting their
bottom line. Although we anticipate that the updated
regulations, if ultimately implemented, would greatly impact
Massachusetts businesses, there are several changes employers may
implement, to ensure compliance with the DOL's updated overtime
regulations (if and when they are effective), while limiting the
regulations' overall economic impact. Thus, while the regulations'
future remains uncertain, attorneys advising employers should take
this opportunity to advise their clients as to the anticipated
economic impact of the updated regulations, and ways to minimize
this impact, if and when the regulations go into effect.
First employers may comply with the regulations, once they are
effective, by simply raising the salary of those exempt employees
who currently earn between $23,600 per year to $47,476 per year. In
doing so, employers would not only comply with the updated overtime
regulations, they would also ensure that their exempt employees can
continue to perform unlimited overtime hours, without any
additional cost. Employees whose employees already earn close to
the new $47,476 per year threshold may ultimately choose this
option to avoid the potentially significant additional costs
associated with formerly-exempt employees becoming eligible once
the DOL can implement its updated regulations. Further, employers
with significant overtime needs may ultimately choose to comply
with the updated regulations in this manner, as increased costs
associated with raising exempt employees' salaries to comply with
the new regulations, once implemented, may ultimately cost less
than paying those same employees (if rendered non-exempt) at time
and a half for significant overtime hours.
Second, employers may comply with the updated regulations, once
they are implemented, by simply re-classifying previously exempt
employees earning less than $47,476 per year as non-exempt, and
then paying these newly non-exempt employees time and a half for
all overtime hours worked over 40 per week. If and when the new
overtime regulations are implemented, businesses which rarely
require their employees to work over forty (40) hours in a single
week will likely choose to comply in this manner, as will
businesses which can afford to pay their employees for overtime
work without excessive cost (e.g., employers whose non-exempt
workers earn a relatively low wage).
Third, many employers may ultimately choose to limit the hours
their employees work to 40 hours per week, with requirements for
employees to seek approval prior to working any overtime hours. If
and when the DOL is able to implement its updated overtime
regulations, businesses which can easily limit their employees'
hours to 40 per week may choose to comply by doing so. As always,
however, businesses who limit non-exempt employees to working only
40 hours per week must not only implement a system to approve
overtime hours as required, they must be prepared to pay all
overtime worked, with or without approval, as prior approval for
overtime is not a pre-requisite for its payment under the FLSA.
Fourth, once the regulations are implemented, employers may
off-set their anticipated economic impact by reducing newly
non-exempt employees' hourly wages, thereby off-setting the cost of
any overtime compensation to which these workers would be entitled,
under the changed regulations.
Fifth, employers may avoid any additional costs by raising a few
exempt employees' salaries to $47,476, and then off-setting the
increased economic burden by eliminating redundant employees.
Lastly, employers faced with the potential economic impact of
the updated regulations may choose to extend a single (formerly
exempt) employee's job duties over multiple non-exempt employees,
to avoid a single employee ever earning overtime. For example, if
an employer uses two employees to perform what was once a single
role, that employer may use 80 hours of employee time per week (40
per employee), without having to pay a single hour of overtime.
Conclusion
While the courts continue to determine whether to ultimately
permit the DOL to implement its updated overtime regulations,
attorneys representing employers should take this opportunity to
advise their clients on ways to diminish the economic burden the
updated regulations will cause, once implemented. For example,
although the DOL has estimated that its updated overtime
regulations will significantly impact employers, businesses may
reduce such an impact by implementing one or more of the
recommendations set forth above. Attorneys advising employers
should work closely with their clients to not only ensure
compliance with the DOL regulations once implemented, they should
use this time of uncertainty to determine how employers may best
comply with the regulations, if and when they are implemented,
while still protecting their bottom line.