A decision by a Texas Federal Court could mean the end for the Department of Labor’s overtime rule expansion, creating uncertainty for businesses nationwide. On November 15th, 2024, the court ruled in State of Texas v. Dep’t of Labor that the DOL exceeded its authority in raising the salary threshold for employees exempt from overtime pay. As a result, the minimum salary required for exemption reverts to $35,568 (or $684 per week) and enforcement of the regulation nationwide is blocked.
The DOL’s overtime rule, implemented on July 1, 2024, raised the minimum salary for white collar employees to be considered exempt from the Fair Labor Standards Act (FLSA) overtime pay requirements. The threshold increased from $35,568 (or $684 per week) to $43,888 (or $844 per week). A change that would mean mandatory overtime pay for millions of employees nationwide. Additional increases were planned for January 2025 and every three years thereafter.
With the court’s decision, the January 2025 increase is blocked, and the July 2024 changes have been rolled back. No scheduled increases to the FLSA regulation will occur, leaving business wondering how to adapt.
Financial Implications for Employers
The ruling creates both opportunities and challenges for businesses. On one hand, the decision offers temporary relief to employers concerned about increased labor costs associated with the expanded overtime eligibility. On the other hand, it perpetuates uncertainty in labor policy, making it harder for businesses to plan for the future.
While the court ruling has paused the expansion of the FLSA’s overtime rule, it is unlikely to be the final word on the matter. Businesses should be prepared for a multitude of possible outcomes.
The DOL may appeal the decision, or the administration could pursue a revised version of the rule to address the court’s concerns. However, the 5th U.S. Circuit Court of Appeals would most likely not act on an appeal before President-elect Donald Trump takes office in January.
What Comes Next?
In any case, businesses should maintain updated records of employee exemption status. Employees who were reclassified from exempt to nonexempt due to the rule may be switched back to exempt. If that is the case, written notice of the change is required in some states before reclassifying those employees as exempt. Businesses will need to decide whether reclassification is best for its operations moving forward.
For businesses that have already adjusted their payroll practices to comply with the July changes, this ruling could complicate financial forecasting. Employers now face the question of whether to maintain those adjustments or revert to previous policies which may have a negative effect on employee morale.
Multistate employers can ensure compliance by maintaining awareness of state laws which can impose stricter guidelines than the federally mandated. For example, Massachusetts employees have a right to overtime pay if they work more than forty hours in one week and are not on the list of exempted workers. Some states may create additional regulations to bridge the gap.
What Can Be Done?
The outcome of the 2024 presidential election and Congressional dynamics could significantly influence the future of federal labor regulations. With holiday closures and a new administrative office taking charge in January, the future for labor regulations is unclear.
As the regulatory landscape rapidly shifts, our tax and accounting experts are here to help you stay ahead. Our team can quickly assess the financial impact of regulatory changes, conduct thorough compliance audits, and develop tailored strategies to optimize your workforce while aligning with your financial goals. Contact Dominick Bellia today to discover how we can guide your business through the complexities of labor and payroll compliance—ensuring your success in a fast-changing regulatory environment.
Please contact Dominick V. Bellia via our online contact form for more information.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
