The Overtime Rules Rollercoaster Ride
On Friday, 11/15/2024, a U.S. District Court Judge in Texas delivered a ruling that effectively struck down the Department of Labor’s “final rule” regarding adjustments to salary levels for exempt employees nationwide. While the decision could be appealed, it is not expected given the priorities of the incoming Presidential administration. The decision not only overturns the salary requirements that were to take effect January 1st ($58,656), but rolled back the salary threshold change from 7/1/2024 ($43,880) to the previous level of $35,568 (last updated in 2019).
What does this mean for you?
First, and most obviously, if you made plans to adjust salaries to the new level at the start of the new year and have notified the impacted employees you can simply proceed with this. If you made plans and did not alert employees, and if this was going to be a challenge for financial or other reasons, you don’t need say or do anything.
For employee relations reasons (i.e., don’t make your employees suffer because of differences of opinion at the federal level about this) it is not advised for employers to reduce salaries that have already been increased. If some exempt employees received a salary adjustment in the summer to comply with the July 1st threshold it is best, if possible, to keep their wages at that level. Employers who had intended to make further salary adjustments at the start of 2025 will need to weigh the direct financial cost of doing so against the cost (financial and otherwise) of reversing direction to keep exempt employee salaries as they are currently.
Employers who changed employees’ status to non-exempt because it was not feasible to adjust their salaries now need to determine if changing these employees back to exempt status makes sense.
Do they still meet the duties test?
How will it impact employee morale?
How will it impact any other changes that were made as the result of changing these employees to non-exempt?
When looking at either telling an employee they will not receive an anticipated salary adjustment (because you no longer are required to do so) or that they are being re-classified again, employers may want to consider a more modest salary increase as a gesture of appreciation for coping with the whiplash of all these changes.
How did we get here?
The TL/DR version (summary) is this (policy geeks, click here for all the details):
In 2016 the Obama administration sought to update exempt employees’ salaries which had not been adjusted since 2004. This would have increased the threshold from $466 to $913/week. This was struck down by a federal judge. In 2019, a new salary threshold was set at $684 per week or $35,568 per year. That remained unchanged until 2024 when the Department of Labor sought to update the salary threshold over the course of two changes ($844/week on 7/1/2024 and $1128/week on /1/2025). The DOL also set a schedule whereby every three years it would be adjusted to provide a more gradual increase and also keep up with factors such as inflation. In June, this ruling was challenged by the state of Texas, as an employer, and a federal district court temporarily halted the rule while the court heard the underlying legal challenge. The decision made on 11/15/2024 was the result of this challenge and rolls the threshold salary back to $684/week ($35,568 per year).
Remember…
The duties test still matters. With so much focus on the salary threshold, it can be easy to overlook the importance of periodically reviewing what your exempt employees actual do and ensure this meets the criteria of the duties test. If this is confusing, daunting, or you simply do not know what this means let us know and we can help.
If you need help figuring how to adjust to this ruling or explain your course of action to employees, we can help with that, too.