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New Federal Overtime Pay Rules Put on Hold

New Federal Overtime Pay Rules Put on Hold

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Due to changes in the Fair Labor Standards Act (“FLSA”) that were announced in May, certain workers that were previously “exempt” from overtime pay were slated to become eligible for such benefits starting December 1, 2016. More specifically, the minimum salary that an executive, administrative or professional employee would need to earn in order to be considered “exempt” from overtime pay would increase from $23,660 ($455 per week) to $47,476 ($913 per week).

However, just days before the effective date of the new rule, a federal judge in Texas has issued a preliminary injunction against the Department of Labor (“DOL”) in regard to the new FLSA regulations. Twenty-one states had filed an emergency motion for a preliminary injunction, and the cases were consolidated last month.

By definition, an injunction is only a temporary halt that preserves the status quo until either the stay is lifted, or a decision is made in the case. As a result, the existing overtime rules, including the salary threshold of $23,660, remain in effect for the time being. But employers should not assume that the changes to FLSA will be permanently defeated, and should remain prepared to move forward in complying with the new rules.

In the previous months, employers may have taken action in anticipation of the December 1 effective date. With the injunction in place, the opposition to the FLSA changes is not meritless. But during this time, there are a number of important items to be considered:

  • If an employee was awarded a salary increase in order to meet the proposed minimum salary of $47,476, employers should consider the impact on the employee and within the work environment of rescinding any such salary increases;
  • If employers have already reclassified employees as “non-exempt” and have communicated the changes to the employee, employers should again consider the impact on the employee and within the work environment of halting or reversing the employee’s status change;
  • Many employers have made system changes (i.e. human resource software, timekeeping, etc.) that would make a reversal of employee status difficult and/or expensive to implement;
  • Other FLSA tests must be met in order for an employee to be considered exempt from overtime pay, such as classification as executive, administrative, professional/creative, outside sales that occur, and status as highly compensated employee). Further, some roles are automatically considered non-exempt, regardless of salary. Thus, employers should not be solely hung up on the salary threshold issue.

Keep in mind that the injunction is only a temporary halt, so it may be wise for employers to make no further changes or reversals until the issue is decided. With that said, these FLSA changes were put into place via executive order by President Obama. If the changes are ultimately upheld by the courts, it is unclear what action President-Elect Donald Trump and the new administration would take, if any; whether that be leaving the new rules in place, limiting the impact of the new rules, or working to rescind the changes altogether.

For more information or questions, please reach out to our National Tax Services Team at taxbriefs@withum.com.

CJ Stroh, Esq. CJ Stroh, Esq.
T (609) 520 1188
cstroh@withum.comm

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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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