Changes to the DOL Overtime Rule

The Department of Labor (DOL) recently appealed a federal ruling that overturned the previously established overtime rules on salary thresholds. This has set the limits for the Fair Labor Standards Act (FLSA) back to levels set in 2019. While we wait to see what might happen with the appeal during a period of changing Presidential administrations, there are several important considerations companies should make. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

What was the 2024 DOL Overtime Rule?

In April 2024, the Department of Labor ruled that more workers would be eligible for overtime, first on July 1, 2024 and again on January 1, 2025. Executive, administrative, and professional (EAP) employees with annual salaries under $43,888 were eligible for federal overtime pay requirements on July 1, and on January 1, this threshold was set to increase to $58,656. Highly compensated employees (HCE) would also experience an exemption increase to $151,164 per year on January 1. If the rule had been maintained with the proposed methodology in place, it may have impacted millions of workers.

The rule also included additional details on who would and wouldn’t be considered an exempt employee. Bona fide employees needed to be salaried, making over the threshold each year, and should be performing duties that are considered exempt from overtime.

In the April 2024 DOL ruling, the salary level was connected to the 35th percentile of the poorest Census region’s earnings, versus the 20th percentile that was previously set. Overtime exemption generally applied to employees working in administrative, professional, and executive roles, such as computer programmers, outside sales employees, and teachers. Specific qualifications were set for different types of workers.

However, manual laborers and other “blue collar” workers were not part of the rule. Instead, these workers receive pay according to the Fair Labor Standards Act. Emergency and safety workers, such as law enforcement and paramedics, were also not part of the rule because the bulk of their jobs did not entail administrative or other business management duties.

Increases to the threshold were also set to be updated every three years starting on July 1, 2027.

What Happened?

When the DOL rule was enacted, there was a chance that the requirement would be challenged in court, and that’s exactly what happened in Texas v. Department of Labor. On November 15, 2024, a Texas federal judge struck down the salary thresholds for white-collar overtime exemptions set as part of the FLSA. The ruling was that the DOL had exceeded its statutory authority.

What Was Reversed?

With this decision, the 2024 DOL overtime rule was completely vacated, including the threshold increases set on July 1, 2024. One thing is left, and that’s the minimum levels set by the 2019 DOL rule, which include EAP exemptions at $35,568 per year and HCE exemptions at $107,432 per year.

The State of Texas and more than a dozen business organizations brought this case to Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas. Part of the reason for overturning the ruling, according to Judge Jordan, was his belief that the 2024 rule would have classified a significant number of employees as nonexempt without adequate screening. Another reason for the overturning was that the DOL was updating its rule within five years, which was a much faster timeline compared to the normal nine years it took to update thresholds.

How Did the Department of Labor Respond?

The DOL responded to the overturning of their salary threshold rule by filing a notice of appeal on November 26, 2024. However, with the change in presidential administration, the DOL may choose to drop the appeal or change course depending on who takes over in leadership. There is also a chance that the current DOL leadership may choose to expedite the appeal. However, this is not likely to result in threshold increases moving forward as planned by January 1.

What are the Implications for Employers?

For now, employers should operate under the current upheld thresholds, which are $35,568 per year, or $684 per week, for EAP employees and $107,432 for HCE employees. Anyone above these amounts will be exempt from overtime rules. The overturning of the rule may result in reduced employee labor costs and lower administrative burdens, but that doesn’t mean this rule will remain constant in the coming years.

Contact Us

It’s hard to say whether an update will happen in the closing days of the Biden Administration or after President-Elect takes office. That will depend on whether the DOL decides to expedite the appeal. During this time, it’s a good idea to keep up to date with potential changes. If you have questions about the information outlined above, or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.