After a federal judge in the Eastern District of Texas blocked the DOL’s new overtime exemption rule as it pertains to Texas state employees, another judge in the Northern District of Texas declined to issue a similar injunction in a challenge brought by tech company Flint Avenue, LLC. Without addressing the merits of the company’s challenge to the new rule, the court found that a preliminary inunction was not needed because the company did not have any exempt employees who would immediately be rendered nonexempt under the new rule on July 1, 2024. The company conceded that the one employee who it had previously identified was not exempt under the existing rule from 2019. The court determined that a preliminary injunction was not necessary as to four other employees because they would not be affected until after January 1, 2025, when the minimum exempt salary increases again to $1,128. The court stated that it would be able to rule on the merits of the company’s claims before then, making a preliminary injunction unnecessary.

While the DOL’s new overtime rule remains in effect for employers other than the State of Texas, the legal challenges will continue. We will report on further developments as they occur.

On Friday, a federal district court granted a preliminary injunction sought by the State of Texas to block implementation of the U.S. Department of Labor’s new rule increasing minimum salaries for overtime exempt employee. However, the court limited the effect of its injunction to the State of Texas as an employer.

The court concluded that the DOL exceeded its authority by making salary level, rather than job duties, the deciding factor in determining whether many employees fall within the executive, administrative, and professional exemptions under the Fair Labor Standards Act. Although Texas asked for a nationwide injunction, the court declined to extend its ruling beyond Texas state employees, reasoning that the state was the only party to the litigation and had failed to present evidence showing that other employers would be harmed if the rule were to go into effect.

While the present order is limited to Texas state employees, the court also entered a procedural order combining the state’s lawsuit with a parallel suit filed by the Plano Chamber of Commerce and other employer groups. The business groups have yet to file a motion for a preliminary injunction or temporary restraining order, but may now do so in light of the court’s ruling on the State of Texas’s motion.

A third lawsuit challenging the new rule, filed by software developer Flint Avenue, LLC, is pending in the U.S. District Court for the Northern District of Texas. The plaintiff in that case did seek a preliminary injunction. The court has yet to rule on that motion.

The DOL has given no indication that it intends to postpone implementation of its new rule for employers other than the State of Texas. While a broader injunction may follow in the wake of this order, employers should assume for the time being that the new salary rules are in effect.

With the DOL’s new overtime exemption rule set to go into effect on July 1 and no ruling yet on the state of Texas’s motion to put the rule on hold, employers will need to decide what to do with exempt employees whose minimum salary falls below the new threshold.

For some employees, the best path may be to convert an exempt employee’s salary to an hourly rate so that employees’ take home pay remains steady once overtime is factored in. In principle, this is relatively simple: just calculate how many hours the employee is expected to work, then do the math to back in to the correct hourly rate. In practice, things can be a bit more complicated.

Step 1: Estimate weekly overtime

For most employers, this will be the hard part. Any accurate projection of compensation for an employee who is entitled to overtime pay has to include an accurate estimate of how many overtime hours an employee is likely to work. This might be simple for employees who work a fixed schedule in an office setting. But remember, when an employee is non-exempt, they have to be paid for all hours worked. This may include work that would usually be done at home or after hours, time spent dealing with work matters during a lunch break, travel and training time, etc. Don’t assume that someone works 35 or 40 hours per week just because that is the nominal schedule.

Some states, including Illinois, already require employers to maintain accurate records of daily work hours for all employees, including exempt employees. However, most employers do not regularly track exempt employees’ working hours. In the absence of accurate time records, employers are left to estimate. This might entail speaking with supervisors, who hopefully have at least a general idea of when people come in, whether they respond to calls or email after hours, and whether they stick around after “quitting time.” Employers can also look at records such as network access and keycard logs to see when people are present and working.

Of course, once an employee is classified as non-exempt, it is vital to maintain an accurate record of their hours. If the recorded hours do not match up with prior estimates, employers can either adjust employees’ hours or adjust pay rates to ensure that employees are fairly compensated. Of course, such adjustments may create employee relations issues. People may not appreciate having their hours changed, and while they don’t typically mind pay increases, pay reductions will be less popular.

Step 2: Calculate the Hourly Wage

Once you have a decent estimate of how many hours an employee works, converting a salary to an equivalent hourly rate is relatively simple. If the employee works fewer than 40 hours, just divide the salary by the number of hours worked. If the employee does work overtime, the math is only slightly more complicated.

Here’s the formula:

Hourly Rate = Salary ÷ (40 + (OT hours x 1.5))

For those who don’t like to do math, here is an Excel file that will calculate the amount for you: Calculator – Salary to Hourly Rate

Caveats

Remember, garbage in, garbage out – if your estimates of work hours are off, this formula will not necessarily result in hourly earnings that are the same as a reclassified employee’s former salary. One way to address this might be to set the rate conservatively, but tell employees that the company will gross up their pay after some period if it turns out to be less than their former earnings. Just be aware that if you do that, the “gross up” bonus may itself have to be factored into overtime.

Also note that this method may not work very well for employees whose hours fluctuate significantly from week to week. For those employees, consider whether the fluctuating workweek method of calculating overtime based on a fixed weekly salary may be a better fit than an hourly wage.

UPDATE June 27, 2024: As of this morning, the court has yet to rule on the pending motion to block implementation of the DOL’s new overtime rule. Yesterday, the DOL filed a “notice of supplemental authority,” suggesting that the district court should follow the Supreme Court’s decision yesterday in Murthy v. Missouri by holding that any relief in the case is limited to the state of Texas as an employer, rather than blocking the rule nationwide for all employers. If the district court follows that suggestion, the new rule may still take effect on July 1 even if the court finds that the DOL exceeded its authority in adopting the rule. Employers should remain prepared to implement the new rule on July 1 by increasing salaries to meet the new minimum salary thresholds or reclassifying employees as non-exempt.

ORIGINAL POST:

The clock is quickly ticking down to July 1, when the U.S. Department of Labor’s new rule increasing the minimum salary for many employees to be considered exempt from overtime under the Fair Labor Standards Act is supposed to take effect. When a similar rule was supposed to take effect back in 2016, the clock was paused at the last moment by a federal judge in Texas, who found that the DOL exceeded its authority under the FLSA by making salary rather than job duties the controlling factor for whether an employee is an exempt executive, administrative, or professional employee. The 2016 rule never took effect, although the DOL approved a smaller increase to the minimum salary level in 2019, to the current $684 per week.

This past Monday, June 24, 2024, another federal judge heard arguments on a motion to block implementation of the DOL’s new rule in State of Texas v. United States Department of Labor, et al. In comments during the hearing, Judge Sean D. Jordan reportedly expressed skepticism about the new rule, suggesting that a repeat of 2016 may well be in the works. Judge Jordan has yet to issue a ruling but could do so at any time.

So what should employers do in the meantime? As in life, nothing is certain in litigation. Until we know for certain that the rule will be enjoined, employers should assume that it will take effect on July 1. If it does, employees with salary levels below the new minimum of $844 per week (increasing again to $1,128 per week effective January 1, 2025) either need to be paid more or reclassified as non-exempt.

Stay tuned for further updates.

A common question for schools assessing how to comply with the new overtime exemption rule published by the U.S. DOL is what to do about coaches and athletic trainers in light of the new minimum salary requirement for the executive, administrative and professional exemptions.

For coaches, two exemptions may still apply even if the coach’s salary falls below the new thresholds of $884 per week (starting July 1, 2024) or $1,128 per week (starting January 1, 2025). A coach whose primary job duties are instructing student athletes on topics such as athletic performance, physical health, team concepts, and safety, or designing instructional programs for student athletes or the team as a whole, may qualify for the teaching exemption. Employees who fall under the teaching exemption do not have to be paid on a salary basis or meet the minimum salary level under the regulations.

Continue Reading Coaches and Athletic Trainers Under the New FLSA Exemption Rules

The U.S. Department of Labor recently published new final regulations that increase the minimum salary level for most employees to be considered exempt under the executive, administrative, and professional exemptions to the Fair Labor Standards Act. While these new rules could affect some 4 million workers, not all exempt employees are subject to the minimum salary requirement.

Continue Reading Not All Exempt Employees Are Affected by the New Minimum Salary Rule

On April 23, 2024, the U.S. Department of Labor issued final regulations updating the minimum salary threshold for employees to be considered exempt from overtime requirements under the Fair Labor Standards Act. The regulations are scheduled to be published in the Federal Register on April 26, 2024. The new rules increase the minimum salary from the current level of $684 per week (about $35,568 per year) to $844 per week (about $43,888 per year) effective July 1, 2024, and $1,128 per week (about $58,656 per year) effective January 1, 2025. According to the final rule, $844 per week is the “20th percentile for weekly earnings of full-time nonhourly workers in the lowest-wage Census Region and/or retail industry nationally,” and $1,128 per week is the 35th percentile. Beginning July 1, 2027 and every three years thereafter, the salary level would be readjusted to reflect updated earnings data.

Continue Reading U.S. DOL Updates Salary Thresholds for Overtime Exemptions

In April, the Illinois Department of Labor published new regulations regarding the expense reimbursement requirements in Section 9.5 of the Illinois Wage Payment and Collection Act. The Act requires an employer to reimburse an employee for “all necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed by the employer.” It defines “necessary expenditures” as “all reasonable expenditures or losses required of the employee in the discharge of employment duties that inure to the primary benefit of the employer.”

Continue Reading New Reimbursement Rules for Illinois Employers

In 2018, Congress added a provision to the Fair Labor Standards Act prohibiting employers from retaining employee tips or allowing managers or supervisors to participate in a tip pooling arrangement. Today, the U.S. Department of Labor announced a new final regulation in which the DOL asserts authority to penalize employers up to $1,100 per violation of this provision, on top of any back wages owed. Prior rules published by the Trump administration also provided for civil penalties, but only in cases of “repeated and willful” violations. The new rule allows the DOL to pursue penalties even for a first offense and regardless of whether the violation was willful. The rule defines “managers and supervisors” as those employees who meet the duties requirement for the executive exemption, whether or not the employees are paid on a salary basis or actually treated as exempt.

The rule is scheduled to be published in the Federal Register on September 24, 2021, and will take effect 60 days later on November 23, 2021.

The DOL is still working an additional rule that will govern how employers pay tipped workers who spend time on tasks that don’t generate gratuities, such as washing dishes or other “back of the house” functions. In June 2021, the DOL proposed dropping regulations issued by the Trump administration and returning to the longstanding rule that would require businesses to pay tipped workers at least the federal minimum wage for non-tipped activities when those activities take up at least 20% of a worker’s time in a workweek. The DOL is currently reviewing public comments on that proposal and is expected to issue a final rule in the coming months.

Wage and hour law is full of traps for the unwary. Even compensation practices that are well-accepted across an entire industry can sometimes create huge headaches for employers in the face of a legal challenge. Case in point: A recent decision by the Fifth Circuit Court of Appeals in Hewitt v. Helix Energy Solutions Group, Case No. 19-20023, in is causing upheaval in the energy sector by suggesting that even highly paid supervisory employees may be entitled to overtime pay on top of their six-figure compensation because they are paid a day rate rather than a weekly salary.

Continue Reading Even High Earning Supervisors Can Be Entitled to Overtime