A Texas federal court judge issued a preliminary injunction yesterday, November 22, 2016, against the new overtime rule that was set to take effect on December 1, 2016. U.S. District Judge Amos L. Mazzant ruled that the 21 states and 50+ business groups who filed suit to block the rule would suffer serious financial harm if the rule were to be put into effect on December 1.
Judge Mazzant said the Department of Labor (DOL) exceeds its delegated authority and ignores Congress’ intent by raising the minimum salary level such that it supplants the duties test. According to an article in Forbes, the DOL argued that the rule was being updated in order to keep up with “our modern economy.”
The DOL released a proposed rule on July 6, 2015 to update the regulations governing which executive, administrative, and professional employees (white-collar workers) are entitled to the FLSA’s minimum wage and overtime pay protections. These regulations have not been updated since 2004; the proposed rule would update the salary level required for exemption to ensure the FLSA’s intended overtime protections are fully implemented.
On May 17, 2016, the DOL Wage and Hour Division released the final rule on the FLSA overtime regulations. The final regulations would have a significant impact on many employers and employees, with an effective date of December 1, 2016. The final regulations make changes to the minimum salary threshold, highly compensated employee exemption limit and automatic annual adjustments to the salary threshold.
In September 2016, two separate lawsuits were filed in a federal district court in Texas challenging certain provisions of the new rule. Twenty-one states joined together in one of the lawsuits and the other suit was filed be a group of business groups, that included the U.S. Chamber of Commerce. Later, the two lawsuits were consolidated.
What Happens Next
The preliminary injunction effectively stops the new overtime rule from taking effect on December 1, 2016. However, this is temporary; allowing the court time to determine the legality of the DOL final overtime rule. In the meantime, the DOL is also considering its legal options.
As we’ve seen over the course of this past month, we can expect the unexpected and should exercise caution in assuming any particular outcomes.
At this time, employers should be prepared for anything. Employers who have already made changes to be compliant with the overtime rule should not make any additional changes until the court makes a final ruling.
It is important that all employers remember that this injunction is at the federal level and does not impact any of the upcoming changes for some state-level minimum salary threshold changes that are scheduled to take effect.
Paylocity will continue monitoring the status of the overtime rule injunction and will provide updates as we receive more details.
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This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a payroll service provider are encouraged to seek the advice of a qualified CPA, tax attorney, or advisor.