On November 15, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide order blocking the implementation of the U.S. Department of Labor’s (DOL) new overtime rule. The new rule, which would have expanded overtime pay for millions of U.S. employees, will no longer go into effect on January 1, 2025, and the phased increases that began on July 1, 2024 are now nullified.
Under federal law, most hourly employees in the U.S are considered “non-exempt” and are eligible for overtime pay if they work more than 40 hours in a week. Salaried employees, however, are considered “exempt” from receiving overtime pay if their earnings exceed a specific threshold and if they meet certain other pre-requisites, as set out in the Fair Labor Standards Act. The DOL’s new rule would have expanded overtime eligibility by increasing the minimum salary threshold for “exempt” employees.
These phased increases were scheduled as follows:
Pre-July 1, 2024 Salary Threshold |
July 1, 2024 Increase |
Proposed January 1, 2025 Increase |
|
Executive, Professional, and Administrative Employees |
$35,568 |
$43,888 |
$58,566 |
Highly Compensated Employees |
$107,432 |
$132,964 |
$151,164 |
Based on the November 15 ruling, the minimum salary threshold will now return to the pre-July 1, 2024 figure.
In the end, the court ruled the DOL went beyond its legal authority in establishing the new rule. It specifically found that by setting the salary threshold at such a high level the DOL effectively invalidated the “duties” component of the exemption test, which is used to determine if an employee’s duties meet the requirements for exemption of overtime pay. At this point, the DOL has the option to appeal the court’s decision. However, given the likely direction of the incoming administration, such action is unlikely.
We encourage you to reach out to employment counsel before making any changes to your compensation structure to ensure you remain compliant with proper classification of your employees. If you have already made adjustments or communicated potential changes to employees, contact us to discuss your strategy going forward.
