Federal Court Blocks Nationwide Overtime Pay Rule: What SMBs Should Know
Quick look: In mid-November 2024, a federal court blocked the national overtime rule that raised salary thresholds for white-collar exemptions in July 2024 and was slated to increase them again on January 1, 2025. Here, discover the details of this recent change and uncover key considerations for employers to maintain compliance while upkeeping employee morale.
On November 15, 2024, a federal court ruling blocked the nationwide overtime rule that took effect on July 1, 2024. This rule had increased the salary threshold for white-collar exemptions from $35,568 to $43,888, and stated the limit would rise again to $58,656 starting on January 1, 2025. In other words, the salary threshold for white-collar exemptions has returned to the 2019 level of $35,568 annually ($684 per week).
The court has reiterated its position from the 2016 overtime rule, stating that the white-collar exemptions should be based on job duties, not salary, and that the new rule placed excessive emphasis on salary rather than duties for determining overtime eligibility, which exceeds the U.S. Department of Labor’s (DOL) authority.
Further, the court explained that the rule essentially sought to replace the Fair Labor Standards Act’s (FLSA) duties test with a salary-based test, which it deemed impermissible. The ruling concluded that the DOL does not have the authority to prioritize salary over duties in determining exemption status.
While the Biden administration could appeal the ruling, the 5th U.S. Circuit Court of Appeals may not act on the appeal before President-elect Donald Trump assumes office. Further, it’s possible that an appeal could remain pending when President-elect Trump takes office on January 20, 2025, and the incoming administration could drop the appeal and could introduce a new rule.
For more information on the recent blocking, click here.
4 key considerations for employers
So, what does this significant change mean for business leaders? Employers should consider the following as they navigate how these legislative changes affect their organizations:
1. The current salary threshold
The salary threshold has reverted to $35,568. Employers who had adjusted salaries to meet the higher thresholds beginning on July 1, 2024, may need to decide whether to maintain these changes or return to previous levels. Business leaders should consider employee morale if they decide to reduce wages and monitor for any potential appeals.
2. The importance of communication
Employers who had planned or communicated upcoming salary increases should inform their staff about the court’s recent decision, as well as any changes to your plans. This clear communication is crucial to maintain workforce transparency, trust, and engagement.
3. How to maintain compliance
It’s crucial to confirm that any changes you make comply with federal, state, and local wage and hour laws. Business leaders should note that some states may have different requirements for notifying employees about wage changes.
4. Employees’ exemption statuses
This recent ruling is an opportunity for employers to take a closer look at their workers’ exemption statuses and review whether employees’ duties align with their statuses.
5. Consultations
Important note: Employers should consult with legal counsel before considering rescinding wages. As a reminder, Alaska, California, Colorado, Maine, New York, and Washington have salary thresholds that exceed the FLSA standard.
Stay compliant with ExtensisHR
Employment laws are ever-evolving, something that can present significant challenges for organizations, especially small- and medium-sized businesses (SMBs).
Fortunately, a professional employer organization (PEO) like ExtensisHR can help. SMBs can seek assistance from our compliance experts to navigate all federal, state, local, and industry regulations concerning overtime pay and create a compliance management strategy that ensures best practices are applied across operations.
To further improve your company’s HR operations, ExtensisHR also provides:
- Enterprise-level employee benefits for workers’ health and well-being
- Payroll administration that streamlines innovative processing software and reporting tools
- Full-scale recruiting and talent management services at no additional cost for PEO customers
- Risk assessments and workplace safety assistance to protect work environments
- HR support and guidance from our human professionals, not automated chatbots
- A dedicated customer support team to help you achieve your HR goals
By adhering to employment regulations, SMBs demonstrate financial integrity and avoid potential penalties. ExtensisHR is proud to help these companies maintain compliance and prepare for future changes.
Need a hand navigating legislation? Browse our risk and compliance solutions, or connect with us today to learn more about how ExtensisHR can keep you protected.
