When a federal court issued a nationwide ruling blocking the Biden administration’s overtime rule that went into effect on July 1, many employers had already acted. They had either raised exempt employees’ wages to $43,888 per year ($844 per week) or converted them to nonexempt hourly workers and started paying overtime when they worked more than 40 hours in a workweek.
For those exempt workers who received raises, employers were preparing to raise salaries yet again on Jan. 1 to $58,656 per year ($1,128 per week).
With the court’s decision, the white-collar overtime salary threshold returns to $35,568 per year ($684 per week), the level set in 2019 during the first Trump administration.
What should employers do now that the overtime rule has been overturned? The good news is they won’t need to raise salaries on Jan. 1. But what about reversing the changes made in good faith back in July? Here are your options:
Convert hourly to exempt. You can switch newly nonexempt employees back to exempt status and resume paying them the rate you paid before July 1—at least $684 per week. Of course, if they were making $684 or more per week but less than $844 per week, you should pay them their prior rate. However, a caution is in order: If you changed their job duties when you converted them to hourly back on July 1, you must make sure they still meet the duties test that fits their exempt status. Otherwise, they won’t qualify as exempt employees.
Stay the course. If you don’t see an advantage to moving employees back to exempt status, you are free to leave things as they are. Perhaps your newly nonexempt employees like getting overtime pay and don’t want to give it up. In that case, it may hurt morale if you make the switch back to exempt status.
Collaborate with Payroll
If you decide to convert hourly employees to exempt status, you must work closely with your colleagues in the payroll department. Employees who are no longer earning overtime will see their pay decline as a result.
That will require your payroll department (or processor) to make some changes. Here’s why: Any change in pay may affect deductions for things like child support and garnishments to repay defaulted debt. Those payments are often based on employee income, so payroll will need to recalculate the amount due.
Beware hidden discrimination
This is also a good time to make sure your pay practices don’t unintentionally discriminate. For example, if you converted some exempt employees to nonexempt hourly status but let others remain exempt, check to make sure your corrective actions don’t disparately affect members of a protected class. That could trigger pay-discrimination lawsuits.
Example: If you mostly convert men back to nonexempt status, they could wind up earning more, due to overtime, than women who remain exempt. Since they all presumably perform the same work, but for different amounts of money, that could set up a compelling claim alleging unequal pay for equal work.
