Employers across the nation—including those in Katy — are playing a waiting game after the delay of a new federal overtime rule from the Department of Labor.

The new rule was announced in May and would extend overtime protections to more than 4 million salaried workers who did not already qualify for overtime pay, according to the Labor Department. Under the rule, salaried workers who earn $913 or less per week—or $47,476 annually—would be entitled to overtime compensation.

On Nov. 22, U.S. District Court Judge Amos Mazzant granted an emergency motion for preliminary injunction preventing the rule from going into effect Dec. 1.

Two lawsuits were filed Sept. 20 against the Labor Department. The first was filed by more than 50 business organizations, including the U.S. Chamber of Commerce and the Texas Association of Business. The second lawsuit was filed by 21 states, including Texas.

“We are hearing from our business members and our chamber of commerce partners across the state that this rule is going to heavily affect their business,” TAB President Chris Wallace said. “What we are concerned about is if employers are going to lay off employees because they simply cannot afford to pay the wages they are being required to pay for certain jobs.”

Rule overview

The overtime law change was made at the behest of President Barack Obama to address the effect of economic inflation since the rule’s last update in 2004. Previously, salaried workers who earned less than $455 per week—or $23,660 per year—were entitled to overtime compensation.

“The white-collar exemption originally was meant for highly paid workers who had better benefits, job security and opportunity for advancement,” said Robin Mallet, Labor Department Wage and Hour Division director of the Houston district office. “Unfortunately the salary threshold had not changed over the years, so it has been eroded by inflation. So the final rule is bringing it back into line with inflation as it is today.”

The law provided three options for employers who are affected by the new rule. Employers can increase the salary of its employees to the new threshold, compensate employees for overtime worked at 1.5 times the employee’s regular rate of pay, or reduce or eliminate any overtime work, Mallett said.

“We believe that the rule is going to put more money into the pockets of middle-class workers, or it is going to give them more free time,” she said. “The number of workers who are working more than 40 hours per week continues to increase.”

Provisions in the rule were also intended to prevent the future erosion of overtime protections from subsequent inflation. Starting in 2020, and every three years after that, the threshold for overtime pay would be adjusted, Mallett said.

“We believe that there will be an improvement in work-life balance because a lot of white-collar employees are working a lot of overtime,” she said. “If people are working less overtime, then their health may improve, and also increase [their] productivity because if the employee is not working as many hours and are not as tired, it could improve morale and reduce turnover.”

Business effects

The overtime threshold increase has received heavy opposition from business groups and local leaders because of concerns the rule will strain businesses and hinder job creation.

The Katy Area Chamber of Commerce did not take a stand on the issue, according to chamber officials, but Elizabeth Pratt, a Katy labor and employment lawyer, said there are a few uncertainties businesses have to deal with.

“It’s really a question of if you’ve implemented a plan, do you reverse it at this point, or if you had come up with a tentative plan of action, do you proceed?” she said.

Pratt said there is no single answer to those questions, however.

“You’re really looking at a lot of human factors,” she said. “If you’ve given people raises to bring their salaries up, how is that going to work for you morale-wise if you reverse those raises?”

She said in some cases, it is best to stick with the old compensation plan.

“By making the changes that they were planning to comply with these aborted amendments, they were really going to have to lay people off,” Pratt said. “Bad things were going to happen to somebody, and so they have to stick with their old system as long as they can because it’s the best thing for everybody across the board.”

Lawsuits, litigation

Before Mazzant blocked the rule from going into effect, the TAB joined with other business organizations in a lawsuit against the Labor Department in a bid to stop the rule from
taking effect.

On Sept. 28, the U.S. House of Representatives passed a resolution—House Resolution 6094—seeking to delay implementation of the rule by six months until the end of March.

Texas Rep. John Zerwas, R-Richmond, said he does not think the federal overtime law will ultimately be implemented.

“I think the rule of regulation promoted by the Obama administration is overreach by a long shot, and it’s unlikely to continue to be in place,” he said. “Especially with the new administration on the horizon, anything that’s going to kind of suppress growth of businesses—which I think this would—is going to be kind of held in check, basically.”

Until the issue is resolved, Pratt said this is a good time for businesses to work on practical matters.

“It’s always a good time to make sure your timekeeping practices are good, and then another thing businesses can do to try to save money in the meantime and prevent overtime issues is revisit their scheduling practices,” she said, adding litigation could take a year.

“It’s not going to move particularly quickly,” Pratt said.