For Manufacturers, “It’s Déjà Vu All Over Again!”
[With apologies to the great Yogi Berra!]
Over the last three years, I have spent a good bit of space on this blog keeping manufacturers informed of the Department of Labor’s efforts to raise the wages of lower and middle level managerial employees and supervisors by raising the “salary threshold”. See Blog posts of March 14, 2019, November 5, 2017, August 31, 2017, September 19, 2016, and May 31, 2016. By raising the salary threshold, manufacturers must either pay employees time-and-a-half for overtime or raise the wages of those workers to meet the minimum salary (assuming those workers also perform the required duties).
This week, the media widely reported that the White House’s Office of Management and Budget approved the DOL’s proposal to raise the salary threshold from $23,660.00 annually ($455.00 per week) to $35,308.00 annually ($679.00 per week), a 49.2% wage increase. That rule change is expected to take effect in January 2020. The proposed rule also raises the so-called “highly compensated employee” threshold from $100,000.00 per year to $147,414.00 per year.
If this headline sounds familiar, we have been here before. In 2016, the DOL issued a rule to raise the salary threshold to $47,676.00. Manufacturers and other employers raced to implement changes to their pay and overtime plans to take this significant increase into account. Professionals representing manufacturers had our hands-full helping to design wage plans balancing competing demands. Some manufacturers increased the annual salaries of employees on the margins. Some reclassified workers as non-exempt, began requiring them to “clock-in and -out,” and otherwise took steps to comply with the new law.
In the Summer of 2016, however, a federal judge in Texas granted an injunction preventing the implementation of the rule, and the election of President Trump in November 2016 halted efforts to enforce the new standard. (In 2017, the same Texas federal judge issued a permanent injunction preventing implementation of the rule. The DOL appealed that decision to the Court of Appeals, which then stayed the processing of the case in light of the DOL’s statement that it would revisit the rule.)
The sudden “on-again, off-again” wage increase caused a great deal of confusion for manufacturers. Having already announced changes to their wage plans, some had no choice but to implement them. Some manufacturers revoked their plans – resulting in some negative HR fallout. Some states rushed in to raise the minimum wage and minimum salary standards under state law to compensate after the brakes were put on the federal standard.
With respect to the new rule, all I can caution is that we have seen this movie already. Manufacturers should be prepared to implement the new rule should it go into effect in January. (My bet is that this administration will work hard to implement the rule before the 2020 election.) But at the same time, one federal judge already enjoined the enforcement of the prior rule. It remains to be seen whether that injunction remains in effect or whether the new rule will overcome the legal challenges which were successful in 2017.