On Tuesday November 22nd, U.S. District Judge Amos Mazzant, in Sherman, Texas, agreed with 21 states and a coalition of business groups to grant a preliminary injunction to the Obama administration rule that extended the salary exemption threshold for mandatory overtime pay.

The rule, issued by the Labor Department, was to take effect on December 1st and would have doubled the minimum salary to $47,500 a worker can earn and be exempt from mandatory overtime pay, if they met the other duty requirements. The rule also indexed the salary threshold to inflation, meaning that further changes could happen without congressional review. The new threshold would have been the first significant change in four decades.

Judge Mazzant ruled that the federal law governing overtime does not allow the Labor Department to decide which workers are eligible based on salary levels alone. The Fair Labor Standards Act says that employees can be exempt from overtime if they perform executive, administrative or professional duties, but the rule “creates essentially a de facto salary-only test,” Mazzant wrote in the 20-page ruling.

 

Impact to Businesses

The new overtime rules were expected to touch nearly every sector of the U.S. economy and have the greatest impact on retail businesses, nonprofits, restaurants and hospitality, which have many management employees whose salaries are below the new threshold. Because the rule will not go into effect on December 1, employers will not be required to either increase salaries for exempt workers or change currently exempt employees to hourly positions.

National Federation of Independent Business President Juanita Duggan issued a statement saying the injunction “is a victory for small business owners and should give them some breathing room until the case can be properly adjudicated.” NFIB was among the business groups, including the U.S. Chamber of Commerce, which filed a lawsuit challenging the rule.

 

What Happens Next

The Labor Department can appeal to the New Orleans, Louisiana-based 5th U.S. Circuit Court of Appeals, or could also drop the appeal after Republican President-elect Donald Trump takes office in January. In August, Trump told the website Circa that the overtime rule was an example of the type of burdensome business regulations he would seek to roll back as president, perhaps by exempting small businesses or delaying implementation.

Business owners should still prepare for as though the new overtime rule will be reinstated. There are several compliance options that your team of CPAs, financial and legal advisors can help you review so you are ready for either scenario. For more information or to discuss your particular business situation, contact Jerry Riegel.