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4 Points of Caution on the Overtime Rule Take Down

A Texas federal court recently struck down the proposed U.S. Department of Labor (DOL) “overtime” rule that would have significantly increased the salary threshold for white-collar exemptions on overtime pay. For now, the federal salary threshold remains at $23,660 or $455/week (instead of the proposed $47,000 salary), but that’s not the end of the story.

Here are a few points employers should consider:

1. While the court nullified the large threshold hike in the most recent proposal, it sent a strong signal that a smaller adjustment of the current 2004 salary level for inflation would be accepted. With bipartisan support for some sort of increase of the threshold as well, it seems the current level will not stay for long.

2. The ruling does not affect state and local overtime exemptions. Texas, Oklahoma and Louisiana follow federal law, but if you are an employer with workers living in states with threshold amounts higher than the federal level (New York’s is $675/week and California’s is $840/week), you will need to continue to comply with those requirements.

3. Don’t overlook the duties test. To be exempt from the federal minimum wage and overtime provisions you must satisfy the duties test, which hasn’t changed since 2004. Before breathing a sigh of relief on salary, be sure your employees are not misclassified due to the duties test. Many employers brushing up on their compliance recently have found that they, in fact, may have some problems on that front. If an employee does not meet the duties test, you’ll be required to track hours and pay overtime for all hours over 40 in a workweek regardless of salary level.

4. Forget shortcuts. They won’t work. Attempting to avoid overtime by classifying employees as independent contractors or by using an unscrupulous staffing firm is a bad idea. “The IRS and state agencies continue to crack down on employers misclassifying employees as contractors or shielding them under a third-party because it’s not just an issue of avoiding overtime pay, it’s lost payroll tax revenue for them, too,” explains Amy Beckstead, partner at Beckstead Terry PLLC.

Meanwhile, you can formally tell the DOL your thoughts regarding the issue. Until September 25, 2017, the DOL is collecting information that will help it revise the regulation that defines and delimits exemptions from the Fair Labor Standards Act’s minimum wage and overtime requirements for certain executive, administrative, professional, outside sales and computer employees. Click here for more information.

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