Imagine you are called into your employer’s office just a few months before the holiday season and are told that due to new federal regulations, you will be bumped from your salaried position and moved (back) to being an hourly employee. This is the reality the employees of Hobby Works, a small hobby and gift shop in Laurel, Maryland which employees only 35 employees, faced. Michael Brey, the owner of Hobby Works, was put in an unfortunate situation thanks to the federal new overtime rule, scheduled to go into effect December 1st.
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Once implemented, the new overtime rule will drastically raise the salary threshold responsible for determining whether or not employers are required to provide overtime pay to their employees. Currently, mandatory overtime pay is required of an employee earning under $23,660 annually. Under the new law, that threshold will be doubled, applying to any employee, salaried or hourly, earning under $47,476 year. For small businesses like Hobby Works, this new rule comes with very expensive implications.
Luckily for Brey, who estimates that the total cost of the new overtime rule would have cost his company $35,000, a federal judge in Texas issued a preliminary injunction blocking this rule from becoming a reality, at least for now. In his decision, which came less than two weeks before the new rule was scheduled to go into effect, Judge Amos Mazzant of the Eastern District of Texas ruled against the overtime rule on the grounds that it exceeded the Department of Labor’s authority. Adding to this sentiment, Judge Mazzant stated:
The Labor department ignores Congress’s intent by raising the minimum salary threshold such that it supplants the duties test … if Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.
While this comes as a relief to many employers who were worried about the implications this rule would have on their employees, there is also a sense of frustration since so many had already cut hours and moved employees from salaried to hourly positions.
“This is information I could have used three months ago,” Brey told Fortune, “Psychologically, it felt like a demotion [for the employees], and people were a little upset.” As of now, the overtime rule is in a state of limbo and employers, and their employees, are left holding their breath waiting to see how this whole situation plays out.
Within the next 60 days, the preliminary injunction will go through the process of becoming an official injunction, a process that includes a series of additional court hearings. During this time, the Obama Administration could decide to appeal Judge Mazzant’s decision to the U.S. Court of Appeals for the Fifth Circuit, however this process is lengthy and by the time any decision could be made, the new administration will have already moved into the White House.
Ignoring the very real and very negative repercussions this new rule is already having on employers and their employees, the Department of Labor issued a written statement declaring their disappointment with the situation, saying, “We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work … We are currently considering all of our legal options.”
For now, employers are trying to deal as best they can after many, like Brey, have already had uncomfortable discussions with their employees.
Unfortunately for small business owners, when the government steps in and interferes with policies that directly affect their companies, it shifts the focus away from caring for their employees and their customers to compliance with federal regulations.
Bryan Pate, the chief executive of Elliptigo, a San Diego based elliptical bicycle manufacturer with 22 employees, explained this burden best by saying, “This once again forces me to spend time on something that is not helping out my business at all.”
