Tax Alert: DOL's Overtime Rule Blocked by US District Court

By Avery E. Neumark  |  November 29, 2016

DOL's Overtime Rule Blocked by US District Court

On November 22 - just before the US Department of Labor’s (DOL’s) new overtime rule was scheduled to go into effect on December 1, 2016 - a federal judge issued an injunction and temporarily blocked it. The rule was set to make dramatic changes to the rules determining overtime for certain executive, administrative and professional employees under the Fair Labor Standards Act (FLSA). 

The final rule, issued last May, would have doubled (to $47,500) the maximum salary an executive, administrative or professional worker could earn and remain eligible for mandatory overtime pay, making it more difficult for employers to classify employees as exempt from overtime requirements. Additionally, the new rules increased the compensation requirements for highly compensated employees subject to a minimal duties test from $100,000 to $134,004. Overall, these new rules were expected to increase employers’ payroll tax liability due to paying overtime to more employees or as a result of paying higher salaries to maintain overtime exemptions. 

For more information on the revised overtime rules, see the Marks Paneth Tax Alert – DOL’s Final Overtime Rule Brings Sweeping Changes

The ruling 

In September, a coalition of business groups and 21 states filed lawsuits in federal court (the US District Court, Eastern District of Texas, Sherman Division) claiming that the new overtime changes were unconstitutional. 

On November 22, US District Judge Amos Mazzant ruled that the federal law governing overtime doesn’t allow the DOL to decide which workers are eligible for overtime pay based on salary levels alone. The FLSA states that employees who perform executive, administrative or professional duties can be exempt from overtime. Judge Mazzant wrote in his ruling that the new rule “creates essentially a de facto salary-only test.” He granted a nationwide injunction effectively blocking the implementation of the rule until the court makes a final decision on whether the new FLSA changes are valid. 

What's next? 

The DOL is reviewing its options, saying it’s confident that the new rule is legal. Nevertheless, many employers have already made or are in the process of implementing changes in anticipation of the FLSA rule changes. It is important to seek advice on your current compliance efforts especially in light of this recent court ruling. For example, reversing a salary increase to an employee in order to maintain an exemption may be difficult or require certain notice procedures to be followed. And since the recent court action is temporary pending a final determination on the validity of the rule, it may be prudent to delay making any abrupt decisions or reversals. Employers should continually evaluate the overtime status of their employees and properly classify. Questions on the ruling or how your company should be applying the overtime exemption? Please contact us.

For more information 

If you have questions about this alert, please contact Avery Neumark, Partner in the Tax Practice, by phone at 212.324.7085 or by email at or any of our tax professionals.

About Avery E. Neumark

Avery E. Neumark Linkedin Icon

Avery E. Neumark, CPA, JD, LL.M, is a Partner in the Tax Group at Marks Paneth LLP. Mr. Neumark is an attorney with more than 35 years’ experience specializing in employee benefits and executive compensation, as well as ERISA, retirement and health and welfare planning, and compensation consulting. He has particular expertise in both for-profit and nonprofit sectors, and in serving high-net-worth individuals. His prior experience in professional services firms includes various leadership and management... READ MORE +

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