On Nov. 22, just a little more than a week before an important new overtime rule was set to take effect, a federal judge in Texas issued a nationwide injunction that blocked the rule’s implementation. This injunction was a result of 21 states and various business organizations filing lawsuits against the Department of Labor (DOL).
If not for the ruling, the new rule would have more than doubled the minimum salary threshold level (from $455 per week to $913) for exemption from overtime pay under the Fair Labor Standards Act. The judge concluded the DOL has the authority to implement rules regarding what job duties qualify for an overtime exemption, but only Congress has the authority to implement changes to the salary threshold.
Overall, this is welcome news for car dealers. Unfortunately, the timing of the injunction came at the tail end of a months-long effort by car dealers to become compliant.
The DOL has already filed an appeal and a motion to expedite the process. If it’s successful, the rule could possibly be applied retroactively to Dec. 1. However, the clock is ticking as inauguration day approaches. As of this writing, President-elect Donald Trump has not tapped a new labor secretary. Even if the court decides to take action before then, there’s no telling what the new administration will do with the rule when they take over. They could scrap it, scale back the salary threshold, or even carve out a small businesses exemption.
In the short run, dealers who proactively took steps to comply with the rule are left in a very precarious position. You are not yet required to increase an employee’s salary above the threshold to maintain his or her exemption status or reclassify workers who fell below the threshold and pay overtime. So if you have already implemented changes or announced changes that would take effect on Dec. 1, what should you do now?
To Pay or Not to Pay
How you decide to move forward will depend on your dealership’s culture and your relationship with your employees. If only a few are affected, you may feel the potential damage to morale caused by turning back may not be worth the cost savings. It is easier to bump employees who received a base salary over the minimum threshold. But do you really want to commit to paying overtime when you are not legally required to do so?
Once you commit, it will be very difficult to go back. If you are in a larger dealership, your bottom line will be significantly impacted by the rule. So you may want to roll back to your original pay plan and wait to see how this plays out in court.
Understanding the impact of this option on negatively impacted employees and displaying empathy when communicating your strategy with them will go a long way. Those who were told they would now be eligible for overtime or receive a salary boost to push them above the threshold are going to be the groups whose morale is hit the hardest. If you are worried about the impact on the affected employees, an honest, one-on-one conversation may be your best bet. If you do roll back their salary, keep in mind that some states have mandatory advance notice requirements related to wage changes.
For other employees who were under the threshold — including those who don’t usually work overtime or who had their rates reduced to minimize the impact of the new overtime pay rules — this may be welcome news. They were not going to be earning any extra money as a result of the new rule, but they would be taking on an extra burden of punching a clock and losing many of the freedoms their “professional” exempt counterparts enjoy.
Keep in mind that the rule only impacted the salary threshold. In order to be exempt from overtime, employees still have to pass the duties test, which means their primary job duties must consist of executive, administrative or professional duties as defined by the DOL. If you had employees who were questionable on passing the duties test, this is a great time to reclassify them without raising too many red flags.
Dave Druzynski is the human resources director at Auto/Mate Dealership Systems. Email him at [email protected]