As we kick off 2017, both traditional and social media are inundating us with coverage about “jobs, jobs, jobs” – the focal point for the incoming Trump administration. Late last week, Amazon announced plans to hire 100,000 new jobs over the next two years. This comes on the heels of manufacturing companies like Ford and Fiat Chrysler that affirmed plans to expand production facilities inside the United States, which will create construction jobs and increase their own workforces.
While the headlines are focused on planned new jobs, there’s a key piece of the employment landscape that’s being overlooked – the 4.2 million American workers who stood to financially benefit from changes to the Department of Labor’s “Overtime Rule.” Announced last May, the changes would have raised the salary threshold indicating overtime pay eligibility from $455/week to $913 (or $47,476 per year).
Fast forward to November when U.S. District Court Judge Amos Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing the Overtime Final Rule on December 1, 2016.
So, when our finance and accounting experts at Abila looked in our crystal ball to develop 2017 Finance Predictions for the nonprofit sector, the fate of the Overtime Rule was admittedly murky. At the very least, we knew the Overtime Rule was temporarily halted; at most, it was at serious risk of being halted altogether after President Elect Donald Trump’s inauguration.
How did we end up here? According to the Department of Labor (DOL), approximately 62 percent of salaried workers in 1975 were eligible for overtime pay. By 2016, that number had plummeted to just 8 percent, because of the current low threshold of $23,660 (annual salary for a full-year employee) hadn’t kept pace with inflation, which exempted millions from overtime eligibility.
This prompted the DOL to research and make recommendations under the direction of President Obama, starting a few years ago. The department eventually recommended and formed a new Overtime Rule primarily based on raising the salaried worker threshold to $47,476. This alarmed employers, many from the nonprofit sector, which was not exempt from the regulations. The controversy from the announced change even prompted congressional hearings this past summer.
We covered the uncertainty that loomed primarily as employers digested the regulation, tried to understand and measure its impact on them, and began making plans for the change. Meanwhile, a group of 21 states and business groups, including the U.S. Chamber of Commerce, filed motions in various courts to block the regulation update via an injunction. The fact that the Overtime Rule was to go into effect on December 1 – less than two months from a new administration – added a lot of pressure to the situation. This came to a head just weeks before when a U.S. District court judge in eastern Texas granted a temporary injunction, primarily based on concerns the new rule created a de-facto salary test only, rather than also looking at the duties test of the FLSA.
So heading in 2017, employers – and millions of American workers – are in a holding pattern. There’s evidence that some employers have already made structural staffing changes, like adjusting schedules, reorganizing workloads, or even converting some salaried employees to hourly to minimize their exposure to additional overtime compensation. Others may, in fact, have raised salaries or planned to soon, over the $47,476 threshold effectively making those employees exempt from additional overtime eligibility. Most though, are waiting to see how the fate of the Overtime Rule plays out.
The realities of the legal battle, and more importantly, the new political environment in Washington with the incoming Trump administration, don’t forebode well, though, for proponents of the Overtime Rule change. There’s a decent chance this injunction will stand up to appeals from the DOL.
Absent that though, the new pending Labor Secretary appointment of businessman Andy Puzder, who has been CEO of Hardee’s/Carl’s Jr. fast food franchises, signals that a Trump administration will likely kill the regulation anyway. Interestingly enough, the Overtime Rule was originally designed in part to help managers of fast food restaurants who may find themselves working 60+ hour weeks without overtime compensation. Mr. Puzder has been strongly against the ruling, and it’s doubtful he would even support a compromise that places the salary threshold lower.
While it doesn’t hurt to remain prepared for the Overtime Rule if it ends up surviving (see our checklist for preparing), its future is not looking good. Nonprofits that may have faced structural staffing changes as a part of the Overtime Rule would be wise to stand pat until this is resolved and focus their energy on other strategic HR initiatives like retention and recruitment of talented workers, which will always be a need regardless of what happens in Washington, D.C.