Navigating overtime regulations can be challenging even for the most experienced payroll administrator. Case in point: when a federal judge blocked recently revised U.S. Department of Labor’s (DOL) overtime exemption rules, it created some relief but mostly uncertainty for businesses across the country.
Here’s an overview of the ruling, its impact on employers, and what they should do now.
What Changed:
On November 15, 2024, a federal judge overturned a previously enacted DOL overtime rule that increased salary thresholds for most exempt employees nationwide. This new ruling provides temporary relief for employers concerned about reclassifying employees or increasing salaries to comply with the higher thresholds.
- Employers are no longer required to implement the new salary thresholds scheduled for January 1, 2025, and those that went into effect July 1, 2024.
- The previous salary thresholds ($684 per week and $35,568 annually for white collar exemptions; $107,432 annually for highly compensated employees) are reinstated.
What Employers Should Do:
Remain proactive
- While the need to comply with the new rules is eliminated, employers should understand that the decision may be appealed, overturned, or enforced as is or in a similar version in the future.
Maintain Compliance with Current Federal Laws
- Ensure employees are classified correctly under the existing salary thresholds and duties tests.
Monitor State and Local Laws
- Some states set higher salary threshold amounts (Alaska, California, Colorado, Maine, New York City, New York State, and Washington). Employers must comply with whichever law is more beneficial to the
Evaluate Rollbacks Carefully
- If you increased any employee salaries in conjunction with the July 1 salary threshold increase, you may be able to roll back employees’ salaries but that may not be the best course of action.
- If you reclassified any employees from exempt to non-exempt because you could not increase salaries in conjunction with the salary threshold increase on July 1, 2024, you may reclassify them as exempt unless state law provides otherwise.
- You must give employees advance notice of any change in pay or exemption status in accordance with applicable state and local laws.
- If an organization can afford it, they should consider taking a “wait and see” approach to this court decision. Immediate changes to classification and salary can impact employee morale, engagement, and retention.
Prepare for potential changes
- The status of this rule will continue to develop as legal challenges occur and a new Administration is in place in 2025.
Communicate clearly and openly with employees
- If you have already discussed reclassification or salary adjustments with employees in preparation for the proposed increase in salary thresholds, explain the implications of the ruling to your employees. This could mean putting those previously discussed changes on hold or going ahead with the salary increases as planned.
Being prepared is the best way to navigate the shifting regulatory landscape while maintaining trust with employees and minimizing legal risks. Fair Labor Standards Act (FLSA) regulations should be monitored closely. When in doubt, reach out to an employment lawyer or experienced HR consultant for guidance.