Department of Labor Overtime Salary Rule Rolled Back

The two-tiered increase in the salary threshold under which employers must pay overtime to white collar executive, administrative or professional workers, which went into effect July 1, 2024, with the second tier increase slated to take effect on January 1, 2025, has been rolled back by a Texas court. The court issued a nation-wide stay of the Department of Labor’s changes, effective November 15, 2024. Striking the entire regulatory scheme, the Texas court effectively reverted to pre-July 1, 2024 rules.

Under the law prior to July 1, 2024, employers did not have to pay overtime to employees designated as exempt executive, administrative, or professional employees if those workers earned at least $684 each week ($35,568 annually). In April 2024, the DOL announced a new rule, increasing that threshold amount to $844 each week ($43,888 annually), effective July 1, 2024. The threshold was set to increase yet again, on January 1, 2025, to $1128 each week ($58,656 annually). The 2025 increase was pegged to the 35th percentile of weekly earnings of full-time salaried works in the lowest wage U.S. census region, which is the southern U.S. Thereafter, automatic updates were planned for every three years based on the latest earnings data. The DOL claimed that the January 2025 increase would impact 3 million workers.

The revised regulation was challenged in a lawsuit brought by the State of Texas and a coalition of Texas businesses, arguing that the changes implemented by the DOL exceeded the agency’s authority granted by the Fair Labor Standards Act. In overturning the DOL rule, the court agreed, writing that the agency had exceeded its authority, by using salary not as one element in determining whether employees are exempt from overtime rules, but setting it so high that it “replaced or swallowed” other criteria, such as whether the employee performs executive, administrative or professional duties.

In order to remain compliant with the FLSA, many employers increased pay for some white collar workers, to meet the new salary threshold and maintain the exempt status, while others reclassified some workers as non-exempt and started paying overtime pay to those workers. While the additional increase set for January 1 is off the books for now, the question facing such companies is whether to roll back salaries to the pre-July 1 level of $684 a week – a decision that, at a minimum, may impact employee morale. For those employees whose classification was changed to non-exempt (rather than increasing salary to meet the $844 weekly level), the issue is whether to maintain that status, or revert back to exempt status. That decision could also affect employee morale if losing overtime pay results in an overall reduced wage for employees performing the same amount of work they are currently performing.

While it is quite possible that the DOL will appeal the decision, what remains unclear is whether a new administration would continue to pursue the appeal as consistent with its policy objectives. History may prove insightful as this was the same position the prior Trump administration faced after its predecessor DOL proposed a similarly dramatic increase, which was also struck down by a Texas court. In that case, the government chose not to pursue the appeal, instead implementing the current rule which raised the threshold more modestly.

We will be watching the situation closely (along with any other labor and employment changes coming from the new Trump administration), and will keep our clients advised accordingly. In the meantime, feel free to call any of the attorneys at Nemeth Bonnette Brouwer with your questions.