A federal court has struck down this year’s latest updated regulations regarding overtime exemption.
The History
In July this year, the Department of Labor (DOL) passed overtime exemption reform laws increasing the minimum salary threshold to consider a worker as a salaried employee. Under those regulations, the minimum salary to consider an employee as salaried (and thus exempt from overtime pay) jumped from $35,568 annually to $43,888 on July 1, 2024, with an additional jump to $58,656 on January 1, 2025. Starting in 2027, the salary threshold would automatically adjust every three years to reflect wage changes and the cost of living.
Additionally, the minimum salary for the “highly compensated employee” overtime exemption also rose to $132,964 on July 1, 2024, and would increase to $151,164 on January 1, 2025.
A group of trade associations claimed the DOL had overreached its authority with the Federal Labor Standards Act (FLSA) under the Administrative Procedures Act, which governs how administrative agencies create rules. A federal court agreed, vacating not only the increases that are supposed to take place in January 2025, but also retroactively eliminating the increases that occurred earlier this year, in July 2024.
The DOL is expected to appeal this ruling, but there’s no official word yet on when that may happen or its likelihood of success.
Where We Are Now
As of now, the minimum salary threshold to be exempt from overtime pay is back to $35,568. For highly-compensated employees, the minimum threshold is back to $107,432.
So what is an employer to do? If you had increased employee salaries to meet the threshold for the July 2024 changes, it might seriously hurt employee morale to decrease salaries at this point. A DOL appeal could also potentially reinstate the changes. If you want to go this route, contact your HR Business Partner at Nextep to talk through the state laws regarding salary changes, required notices, and maintaining a healthy company culture.
If you had assessed who is and is not salaried for those July 2024 changes, though, now is a fair opportunity to reassess those decisions and reclassify employees as the law allows. As with any change to employee pay, be sure to be transparent with affected employees and communicate any changes clearly, in writing.
Keep in mind, salary eligibility is not only based on numbers. Employees must also meet specific job duty requirements to qualify as overtime-pay-exempt.
Some states, including Alaska, California, Colorado, Maine, New York, and Washington, have minimum salary thresholds that are higher than the federal standard. As always, if federal and state or local laws differ, you must abide by the one that benefits the employee the most. In this case, you would need to obey the higher standards for workers in those states.
Contact your HR Business Partner for expert advice or any questions. We’ll stay on top of the situation and keep you updated with any changes.
