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Overtime Rule Halted, But Don’t Be So Quick to Avoid Reclassifying Your Employees

Jacob S. Claveloux
January 9, 2017

By now, most employers are aware that the United States’ Department of Labor’s (DOL) new federal overtime rule, which would have doubled the Fair Labor Standards Act’s (FLSA) salary threshold for exemption from overtime pay from $23,660 to $47,476 annually has been halted, as a result of a decision by Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas in a Nov. 22, 2016 ruling (http://www.txed.uscourts.gov/d/26042).  Many employers had been making plans for weeks, if not months, leading up to the ruling, which came less than two weeks before the new rules were set to be implemented on December 1, 2016.  In fact, many employers throughout the country already had made changes in order to comply with the new rule, in some instances giving raises, in others reclassifying job duties or restricting unapproved overtime for certain positions. 

But what about those employers that didn’t make changes to comply with the new rule before December 1, 2016? There are several reasons to conduct an internal audit and consider making changes anyway.  First, we have seen in the case of some of our clients, including schools and developmental disabilities agencies, that there was a need to conduct an audit of job duties and salaries irrespective of the DOL’s rule change.  In several instances, awareness of the need for possible reclassification to remain compliant with the new “salary test” prompted a more thorough audit of our clients’ job classifications, including for several positions that wouldn’t necessarily have been affected by the new salary threshold.  It is important to note that the rule changes were only about the salary threshold. But, a careful and ongoing analysis of job duties also is essential to comply with the FLSA’s other requirement: the so-called “duties test”. Employees classified as “exempt” from overtime eligibility must meet both the duties test and the salary test.

It also may be wise for some employers to consider reassessing their employees’ duties and overtime eligibility for other reasons.  One important reason is that the states are free to set their own, higher, salary thresholds, and several states, including New York, already have a higher threshold salary requirement for overtime pay at present and going forward.  In fact, the New York State Department of Labor (“NYSDOL”) adopted a new rule, which became effective December 31, 2016, which implemented a higher overtime exempt salary threshold immediately, with significant increases for every year through 2021.  NYSDOL’s new rule is complex because it differentiates between New York City, Nassau/Suffolk/Westchester Counties, and all other counties, as well as by the size of the employer.  By way of example, under New York’s current regulation the salary threshold for an employer with 11 or more employees in New York City is now $42,900, and will increase to $50,700 on December 31, 2017.  This means that by December of this year, those employers will need to comply with a salary threshold that is almost $3,000 higher than the halted federal threshold would have been.  Since the specific facts of each employer and their employees’ positions vary so widely, it is best to discuss your company’s specific profile with an experienced employment attorney who can help you analyze your company’s compliance with both the “salary test” and the “duties test” in this volatile legislative and political environment.