New Overtime Rules in Limbo

Jill S. G. Palmeter, CPA, Principal (Nov, 2016)

As we’re sure you have heard, the controversial federal overtime rules issued by the U.S. Department of Labor (DOL) and poised to take effect on December 1, 2016 were blocked by a U.S. District Judge in Texas.  The Court issued a nationwide preliminary injunction enjoining the U.S. DOL from implementing and enforcing the new overtime rules.  These rules would have raised the minimum salary level for the executive, administrative and professional white collar exemptions to $47,476 per year, and forced the payment of overtime to approximately 4.2 million U.S. workers whose exempt administrative or professional salary exceeded the previous $23,660 threshold.  It was thought that the greatest impact of the change would be in not-for-profit organizations, retail companies, hotels and restaurants, where many management positions had salaries below the new threshold.

The states and business groups who ultimately filed a consolidated lawsuit claimed that the drastic salary threshold increase was arbitrary and that the rule “essentially creates a de facto salary-only test.” 

In trying to be proactive, some not-for-profits have already raised salaries or communicated that salaries would be raised effective December 1, 2016.  A retraction of a wage increase, could significantly harm employee morale.  For other exempt salaried positions that were being reclassified to hourly ones with overtime payment, this ruling does allow for such reclassifications to be canceled.  The question of employee morale should again be examined, as some reclassified employees liked the idea of being eligible for overtime pay, while others reclassified to nonexempt viewed this action as a demotion.

Affected businesses now remain in limbo, as the preliminary court injunction must first become an official injunction requiring additional court hearings in the next 60 days.  At this point the DOL could appeal to the 5th U.S. Circuit Court of Appeals in New Orleans, but even a successful legal challenge there might be overturned by future Congressional legislation or withdrawn by President-elect Trump’s DOL. 

Dermody, Burke & Brown’s not-for-profit niche will continue to keep you apprised of any future changes.

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