A federal judge blocked implementation of a controversial rule addressing overtime pay from taking effect next week, a rule that had businesses, nonprofits, and higher education institutions bracing for the impacts of the measure.
The Department of Labor’s rule was supposed to take effect Dec. 1, and under the new measure, any employee making up to $47,476 each year would’ve been eligible for overtime pay.
The Obama administration finalized the rule in May, and the federal government’s announcement sent many companies and nonprofits scrambling to figure out how to comply with the law while also protecting both their businesses and employees.
“The more I learned, the more shocked I became that a rule like this would pass with so little input from those who were going to be impacted by it,” Albert Macre, a small business owner in Steubenville, Ohio, told The Daily Signal. “It’s the law of unintended consequences.”
In anticipation of Dec. 1, some businesses decided to reclassify workers who were previously salaried to hourly, while others gave raises to employees who were close to the $47,476 threshold, exempting them from the new rule.
Macre himself runs several small businesses, and the new overtime rule will impact one, Payroll+ Services, which opened in 1995 and offers payroll processing services.
“I thought it was a typo,” Macre said of the new rule. “I know that there are some pretty bold unilateral moves that have occurred in the executive branch in the last few years, but that just seemed like a big one—a complete doubling of the threshold and the number of people involved.”
Macre’s business fluctuates throughout the year, so his employees typically work less than 40 hours a week for approximately eight months out of the year, but work overtime during the remaining four months of the year when they become busier.
Three of Macre’s employees at Payroll+ Services qualified for overtime under the Department of Labor’s new rule. To make sure that his workers’ pay remained consistent throughout the year, Macre decided to implement a system of salary advances that will be recovered during the overtime months.
Macre toyed with the idea of changing his employees from salaried to hourly, but he ultimately decided it would’ve hurt his workers.
Compared to other new policies like Obamacare, Macre believes the overtime rule was to be ushered in too quickly.
“Here’s one they just jammed down our throats and thought we were just going to be able to work miracles and find this money magically,” he said. “Any time you do too much too soon it’s crazy.”
And the new rule wasn’t going to only impact Macre’s employees’ pay, but also the benefits they receive.
Macre’s business previously covered all of its employee’s health care costs. But now, he’s asking his workers to pay for a portion of their health insurance.
“Essentially what we’re going to give with one hand in terms of additional compensation will be taken away by having the employees be responsible for some of their own benefits,” he said.
Macre, a member of the National Federation of Independent Business, testified on behalf of the organization before the House Committee on Small Business in June.
He’s hopeful that under a new president the rule will either be rolled back or policymakers will come to a “new amicable solution.”
‘Devastating Impacts’
The Department of Labor first announced its proposed rule regarding overtime pay in July 2015, which revised the Fair Labor Standards Act’s overtime regulations.
The current salary threshold for overtime pay is $23,660, and that salary level was last updated in 2004.
Under the Obama administration’s originally proposed rule, the threshold for overtime pay would’ve risen to $50,440—more than double the salary ceiling set more than 10 years ago. But the rule was revised and the salary was lowered to $47,476.
According to the Congressional Budget Office, 3.9 million additional workers would’ve become eligible for overtime under the new rule. Of those, 900,000 “occasionally or regularly” work overtime and would’ve earned more or worked less because of the proposal, the agency found.
In response to the proposal, nonprofits, colleges, small and large business owners, and workers submitted close to 300,000 comments to the Department of Labor.
The proposal found organizations like Habitat for Humanity on the same side as large companies like Wal-Mart, which decided to raise minimum salaries for its entry-level managers from $45,000 to $48,500.
While businesses and nonprofits had been bracing for the impact of the overtime rule, congressional Republicans attempted to provide companies with relief.
Sen. James Lankford, R-Okla., introduced legislation in September that would further delay implementation of the overtime rule to June 1.
The bill stalled in the Senate, but a companion bill introduced by Rep. Tim Walberg, R-Mich., passed the House, 246-177, in September.
“This federal overtime rule is devastating for small businesses, colleges, and nonprofits all across America, but particularly in states with a low cost of living,” Lankford said in a statement to The Daily Signal.
“The economic realities and regional cost-of-living differences that exist throughout the country were completely ignored in favor of yet another one-size-fits-all approach taken by the Obama Department of Labor,” he continued.
A second bill introduced in the Senate and House would’ve stretched out implementation of the salary increase over five years.
Making Adjustments
Though the new overtime rule was set to take effect in just over a week, those opposed to the rule closely watched the courts for further guidance on what will happen with the regulation.
In September, 21 states, the majority led by Republican governors, filed a lawsuit against the federal government in an attempt to block the rule. The U.S. Chamber of Commerce and other business groups filed a second lawsuit the same day.
In their lawsuit, the states argued the new rule violates the 10th Amendment and stressed that under the proposal, state budgets will be damaged and services and programs cut.
“Enforcing [Fair Labor Standards Act] and the new overtime rule against the states infringes upon state sovereignty and federalism by dictating the wages that states must pay to those whom they employ in order to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime,” the lawsuit states.
A federal judge issued an emergency injunction against the rule Tuesday, blocking it from taking effect.
In addition to action from the courts, the Trump administration could also roll back the overtime rule.
Trump often spoke on the campaign trail about repealing many regulations implemented by President Barack Obama.
Already the president-elect and congressional Republicans are looking to eliminate more than 140 regulations after Trump takes office on Jan. 20, and the president-elect said in August he would roll back the overtime rule.
But now that businesses, nonprofits, and colleges have figured out how they’ll comply with the rule, some worry rolling back the proposal won’t be that easy.
“What if it goes three to six months or a year [after implementation] and you’ve already made your changes, your employees have already gotten used to it? You’ve given raises, adjusted salaries, hired part-time workers, and you’ve sort of learned to live with it?” Mike LeFever, president of South Carolina Independent Colleges and Universities, Inc., told The Daily Signal.
“From a practical point of view, can you just go back to the way things were?” he continued. “You just don’t do that.”
LeFever’s organization represents 20 private colleges and universities in the Palmetto State, and he said he initially expected his member institutions to either switch workers who made significantly less than $47,476 to hourly or give those who made close to $47,476 raises so they’re exempt from receiving overtime pay.
Some of the colleges and universities did end up boosting the pay of those who were close to the new threshold so they would’ve been exempt, LeFever said. But others have decided to hire additional part-time workers to take over some of the responsibilities of their full-time workers to avoid paying those employees overtime.
This approach was taken mainly for those working in student affairs positions, which may require weekend work if there is an event happening on campus.
Initially, LeFever was concerned that the new overtime rule could eventually lead to a rise in tuition rates if payroll went up significantly.
But he said the colleges and universities he works with might instead make cuts elsewhere, such as departmental budgets or in future raises.
“It’s not the best of arrangements,” LeFever said, “but everybody has to make adjustments to comply with the law.”
This article has been updated to include the federal judge’s decision to block the overtime rule from taking effect.