What employers need to know.

In a ruling on November 15, 2024, U.S. District Court Judge Sean Jordan struck down the U.S. Department of Labor’s (DOL) recently expanded overtime rule nationwide. The decision, issued by a Texas federal court, effectively removed overtime eligibility from an estimated 1 million workers and changed the salary threshold to the previous $35,568. This ruling cancels the changes that raised the threshold to $43,888 in July 2024 and blocks the planned increase to $58,656 scheduled for January 2025.

The Reasoning Behind the Ruling

The Fair Labor Standards Act (FLSA) requires employers to pay overtime to employees who work more than 40 hours a week unless they qualify for the executive, administrative, and professional (EAP) exemptions. For employees to qualify under this exemption, they must meet three criteria: being salaried, performing EAP duties, and earning a minimum salary.

Below is EAP exemptions explained. These duties tests ensure exemptions focus on job responsibilities rather than salary alone.

  • Executive Exemption: Primary responsibilities include managing a business or department, directing at least two employees, and influencing hiring or firing decisions.
  • Administrative Exemption: Involves office or nonmanual work tied to management or business operations, with discretion and independent judgment.
  • Professional Exemption: Requires advanced knowledge in a specialized field acquired through prolonged education (e.g., teaching, engineering, or computer analytics).

Judge Jordan determined that the DOL overstepped its authority by significantly increasing the salary threshold. According to the court, the new rule emphasized salary over job duties to determine exemption status. This undermines the FLSA’s intent, which ties overtime eligibility to an employee’s duties rather than their income.

The court also struck down the rule’s “escalator provision,” which would have automatically raised the salary threshold every three years without going through the proper regulatory process.

Implications for Employers

The court’s decision leaves the salary threshold at $35,568 for now, but it has created a challenging landscape for employers who had already adjusted their compensation plans in anticipation of the rule changes.

Employers now face several important decisions on how to proceed:

  • Maintain Changes: Companies that have already raised salaries or reclassified employees to comply with the now-invalidated rule may choose to maintain these changes to maintain employee morale.
  • Cancel Changes: Employers might consider canceling adjustments, though this could result in dissatisfaction among employees and potential issues in states that require advance notice of pay reductions.
  • Hybrid Approach: A customized approach based on specific job roles and business needs may help balance compliance and workforce satisfaction.

While the DOL may appeal, legal resolutions could be influenced by the presidential transition and new administration.

The State-Level Consideration

Employers should be mindful of state-specific salary thresholds, which in some cases exceed the federal level. For example, states like California, New York, and Washington have established their own overtime rules, which remain unaffected by the federal ruling. Please remember to always check the specific rules and requirements for your state. If you are client of UniqueHR, and you have questions around state-specific requirements, please reach out to us and we’ll provide you with all the information you need.

What’s Next?

The DOL has the option to appeal the decision, but the outcome may depend on whether the new administration prioritizes defending the rule. Meanwhile, employers should prepare for further developments and ensure compliance with the existing $35,568 threshold.

Employers now face critical decisions about whether to reclassify employees, adjust salaries, or maintain current practices, all while ensuring compliance with duties tests and state-specific regulations. By staying up to date and taking action early, businesses can handle regulatory changes smoothly while keeping operations running well and employees happy. UniqueHR is always here to help ensure our clients remain informed and compliant, so please reach out to us with any questions.