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A federal court has suspended the Department of Labor (DOL) rule that would have increased salary thresholds for “white collar” overtime exemptions. The rule, had it taken effect, would have required additional pay for millions of salaried workers.
The court determined the DOL overstepped its authority by raising the minimum salary too high for overtime-exempt workers and reset the baseline to $35,568, a level set in 2019.
The ruling not only halts the planned January 1, 2025, salary threshold increase but also reverses the adjustment that took the salary floor to $43,888 as of July 1, 2024. While the DOL may appeal, the change in presidential administration on January 20, 2025, suggests the court’s decision will stand.
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The situation mirrors a similar 2016 case where courts blocked comparable regulations. The recent decision, however, gained additional legal strength from this year’s Supreme Court ruling that limited federal agencies’ authority and gave employers an effective means to challenge bureaucratic overreach.
The judge ruled that the DOL acted beyond its legal bounds by prioritizing salary over job duties in determining overtime exemptions since the law stipulates that employers primarily base overtime status on an employee’s actual work responsibilities, not just their pay level. By setting such a high salary threshold, the DOL had effectively made compensation the main factor, which the court found exceeded the agency’s authority.
Employers should be aware of three primary effects of the judge’s ruling.
Employers who already increased salaries to meet the $43,888 threshold face a challenging decision. While they could legally reduce wages back to the $35,568 level, such actions could tank employee morale.
Business owners in this situation may want to wait and see what happens with a potential appeal. Whatever choice an employer makes, it should be clearly communicated so employees aren’t caught off guard.
Organizations should remember that non-exempt status is the default. So, companies can maintain non-exempt status for any employees reclassified as a result of this ruling, as long as they comply with all wage and hour laws that now apply to those workers.
Companies should review employee’s job responsibilities to determine if the duties performed are exempt, as the court’s decision could prompt greater scrutiny of employees’ classification status.
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There is, of course, nothing that prevents an employer from raising compensation levels on January 1. The salary threshold is a minimum pay level, and employees can always choose to pay higher wages. Doing so can strengthen employee recruiting and retention.
Looking ahead, employers should carefully consider their compensation strategies and may benefit from the HR expertise Axcet HR Solutions provides, especially if they’re contemplating reversing a previous decision to meet the interim salary threshold.
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