Federal Judge Pumps the Brakes on Overtime Rules

Department of Labor will be prevented from implementing the new rule, set to take effect December 1st

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Last week a federal judge in Texas ruled in favor of a coalition of states and business groups challenging federal overtime rules that were set to take effect December 1st, 2016, granting their motion for an injunction.

As HR One has already reported, current rules state that certain executive, administrative and professional employees are exempt from overtime regulations if they work more than forty hours per week. One important factor in determining who is and isn’t exempt from overtime is salary threshold. Under the existing rule an employee must be paid at least $455 per week, or $23,660 annually in order to be considered exempt from having to be paid overtime. The new rule would raise that amount to $913 per week or $47,476 annually. The threshold for highly compensated employees (HCE’s), who are exempt from overtime rules regardless of their job duties, based on their salary, would have also been revised under the new rule. The HCE threshold would go from the current $100,000 to $134,004 a year. As of this ruling, the rules will not go into effect as planned on December 1st.

That could change if the Department of Labor appeals the decision to the 5th Circuit Court of Appeals. If the 5th Circuit overrules the lower court, the rule could still go into effect. Complicating that scenario however is the election of Donald Trump. During the presidential campaign Trump indicated that under his administration the rule could be withdrawn, regardless of whether the courts uphold it. Congress could also act to prevent the rule. Outside political factors could also weigh on those decisions. The future of the rule at this time remains uncertain.

Additionally, it is possible for individual states to take action to expand overtime protections. New York has already proposed regulations that would increase the salary threshold under state law. New York's regulations would apply different requirements across the state based on geography and employer size as seen in the table below: 

  Employers outside NYC, Westchester,
Nassau & Suffolk Counties
Employers in New York City
(over 11 employees/10 or under employees)
Employers in Westchester,
Nassau & Suffolk Counties
12/31/2016      $727.50 per week $825 per week/$787.50 per week $750 per week
12/31/2017 $780 per week $975 per week/$900 per week $825 per week
12/31/2018 $832 per week $1,125 per week/1,012.50 per week $900 per week
12/31/2019 $885 per week No Change/$1,125 per week $975 per week
12/31/2020 $937.50 per week No Change/No Change $1,050 per week
12/31/2021 No Change No Change/No Change $1,125 per week


It is expected that New York State will finalize these regulations soon.

What does this mean for employers?

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For starters, employers in New York will need to be prepared to follow the new state rules, which, while not as dramatic a change as the federal rule in the first year, will eventually exceed the federal rule by as early as 2017 for some employers.

All employers will need to continue to monitor the Department of Labor for a challenge to the lower court's injunction and the actions of Congress and President-Elect Trump.

For employers that have already taken steps to comply with the new rule there is now the challenge of how to move forward. Many employers have already made plans to increase employee salaries in order to comply with the new rules. While no longer required to implement any changes, employers should carefully weigh the issue of employee morale before suspending any planned pay increases. For employers who have modified employee schedules in order to comply with the rule, similar consideration should be given prior to making additional changes.

HR One's team of consultants is ready to assist our clients in making these decisions, and we will continue to provide updates on any future court decisions, regulatory action, or legislative action on this topic. If you have additional questions please use the form below to contact us.