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Obama's Overtime Rule Will NOT Take Effect, But Changes Likely Coming

09/08/2017  |  By: Brian McCuller, JD, CPA, Shareholder, Practice Leader Tax


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On August 31, 2017, a U.S. District Court in Texas ruled for the 55 state and business plaintiffs who challenged the Department of Labor’s new rule created in 2016 under President Obama. On September 5, 2017, the Justice Department, which defended the new rule, formally ended the attempt to impose the rule by stating they will not appeal the District Court's ruling.

General Rule

Once an employee works over 40 hours a week, federal law states that employees must be paid time-and-a-half. The exemptions to this are workers whose duties are "managerial" in nature, and reach a certain salary threshold.

The Conflict

Last year (May 2016), the Department of Labor (DOL) announced a new rule that the salary threshold would be raised from $23,660 to $47,476 starting December 1, 2016 to allow for more employees to be eligible for overtime pay. This change would have allowed 4 million more workers to be eligible for overtime, including white collar workers or managers performing duties that would normally not be eligible for overtime.

Business groups and several states opposed the rule stating that small businesses would be hurt, and the DOL overstepped their authority by making these increases without re-evaluating the job duties along with the salary level. The State of Nevada and twenty other states filed suit against the DOL, challenging the rule. On October 12, 2016, the State Plaintiffs moved for emergency injunctive relief. Business groups (business plaintiffs) filed a similar action. On November 22, 2016, the U.S. District Court issued an emergency injunction to stop the rule from coming into effect.

As stated, last week, the U.S. District Court granted summary judgment against the DOL holding the new rule’s salary level exceeded the DOL’s authority, and concluded the new rule to be invalid.  The case was heard in the United States District Court, Eastern District of Texas, Sherman Division (State of Nevada, et al. v. United States Department of Labor, et al., No. 4:16-CV-00731). Read here for the official ruling.

Changes Still Coming

The U.S. District Court held that a salary threshold may be established, but the employee’s duties must be considered. Consequently, President Trump’s administration most likely will attempt to raise the salary level somewhere between the current 23,000 and the failed level of 47,000. The DOL is still accepting comments on its Request for Information (RFI), published on July 26, 2017.  The RFI comment period ends on September 25, 2017.

Stay tuned so you are not caught off-guard with unexpected higher employee costs.

Note:  federal overtime pay regulations have not changed since 2004.

Obama's Overtime Rule Will NOT Take Effect, But Changes Likely Coming

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