Overtime Rule Overhaul: Why the DOL's Final Rule on Overtime Pay is Likely Dead

In April 2024, the U.S. Department of Labor (DOL) unveiled a new final rule aimed at reshaping overtime pay eligibility under the Fair Labor Standards Act (FLSA). While it was met with a mix of reactions, it quickly faced significant legal opposition. A pivotal court decision in November may have sealed its fate, and with a new presidential administration set to take office, the rule’s prospects for survival look bleak.

Recapping the Proposed Changes

Under the FLSA, many salaried employees are exempt from overtime pay. However, to qualify for exemption, an employee must primarily perform executive, administrative, or professional duties and earn a salary above a federally mandated threshold.

The 2024 final rule proposed:

1. Two-stage increases to the minimum salary threshold for overtime exemption:
   • July 1, 2024: The threshold rose from $35,568 to $43,888.
   • January 1, 2025: A further increase to $58,656 was scheduled.
2. Higher thresholds for highly compensated employees (HCEs):
   • The HCE threshold rose to $132,964 in July 2024 and was slated to climb to $151,164 in 2025.
3. Automatic updates every three years starting in 2027, based on a revised methodology using updated wage data.

A Judicial Reversal

On November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the rule, stating that the DOL had overstepped its authority. According to the court, exempt vs. nonexempt status under the FLSA must be based primarily on job duties, not salary. The court ruled that the final rule improperly prioritized salary as the dominant factor. Additionally, the automatic updating mechanism set to begin in 2027 was deemed outside the DOL’s regulatory authority.

The decision was influenced by a broader legal shift: The U.S. Supreme Court’s recent overturning of the “Chevron deference” doctrine. This doctrine had previously given agencies like the DOL significant leeway in interpreting laws. The reversal has emboldened courts to scrutinize and more easily reject agency rules—as seen in this case.

Implications for Employers

With the court’s ruling, the FLSA salary thresholds have reverted to their prior levels:

• Standard salary threshold: $35,568 annually.
• Highly compensated employee threshold: $107,432 annually.

For employers that took a wait-and-see approach, this outcome may bring relief. However, many organizations had already taken proactive steps in anticipation of the rule’s implementation, including:

• Reclassifying employees from exempt to nonexempt status,
• Raising salaries to maintain exempt status, or
• Adjusting salaries downward to offset anticipated overtime costs.

If your organization made any of these changes, it’s crucial to carefully consider your next steps. Reversing classification decisions or rolling back salary increases could trigger discontent among employees and even legal scrutiny. Disgruntled workers might challenge their exempt status, potentially creating further complications.

What’s Next for Overtime Policies?

With a new administration poised to take control, the current appeal filed by the DOL is unlikely to move forward. Employers should anticipate that this version of the overtime rule will be withdrawn. Moving forward:

• Collaborate with your legal counsel to review your overtime policies.
• Assess whether any preemptive changes made to comply with the proposed rule should be maintained or adjusted.

Staying ahead of evolving regulations is essential for managing compliance and controlling employment costs. Contact us for insights and strategies to align your policies with current law while optimizing your workforce management practices.