The U.S. Department of Labor has been thwarted in its attempt to expand the overtime rule after accusations of exceeding its authority. A Texas federal judge struck down the DOL overtime rule on Friday, which means over 1 million workers could lose the overtime pay and salary hikes that they gained with the additional compensation with the DOL’s policy.
For now, the 35k overtime salary threshold remains as it was before the DOL attempted to increase it to $43k. Employers and employees need to keep a close eye on the implications of the overtime rule to see how it will affect them, as the shifting eligibility will be key in determining just how much employers have to pay out for overtime work in the next year.
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What Is the Overtime Rule under the FLSA?
The Fair Labor Standards Act (FLSA) is a federal policy that allows employees to earn additional pay for the work they do beyond contracted hours of work. It applies to employees who work over 40 hours in a week and ensures that they are compensated at a rate not less than time and one-half their regular rates of pay. As a result, the final amount of overtime employees earn depends on their pay, and there is no limit on how much overtime can be accrued in a workweek.
The FLSA has an exempt category, which means that some employees are not eligible to claim overtime pay unless their employers themselves offer some compensation of their own volition. This is not covered by the FLSA.
Certain executive, administrative, and professional (EAP) employees who perform more specialized roles and earn above the predetermined threshold of pay are exempt from overtime regulations under the Fair Labor Standards Act.
The pay threshold is automatically updated every three years according to the inflation and wage data available at the time, and was due for a review again in July 2027, however, the DOL proposed a rule to alter the threshold effective July 2024 as scheduled, with another boost in January 2025.
DOL Overtime Rule Struck Down by Texan Judge
The DOL’s overtime rule changed the threshold for qualification for overtime pay from $35,568 to $43,888 in July, and on January 1, 2025, it would then move up another rung to $58,656. This regulation was brought into effect in July and employers were expected to prepare for the next adjustment in 2025.
The overtime rule’s implications were obvious—millions of additional workers would be able to claim overtime pay as the higher exemption limit would mean that more of them would qualify, regardless of their role.
In June, a Texan judge issued a temporary stay on the regulation for the state of Texas while the court reviewed the legitimacy of the overtime ruling. The judge did not issue a nationwide halt on the rule as Texan was the only party to challenge the rule, but multiple business groups eventually joined the fight. A similar battle had been fought in the same federal district court in Texas, in 2016.
This meant that employers elsewhere adopted the $43,888 threshold and began to pay employees overtime accordingly, or adjusted salaries so they could avoid paying employees for overtime work.
Now, the DOL overtime rule has been struck down entirely by Judge Sean Jordan in the Eastern District of Texas, so not only will the January update no longer occur, but the in-effect $43k change will be reversed nationwide as well. The DOL may choose to appeal the ruling but it is unlikely to lead to concrete results before the new governmental authorities take over.
DOL Rule Changes Will Have Significant Effects on HR and the Employer
The court decision on the labor overtime rule will leave a lot of work for employers and the HR teams. Employers that adjusted salaries already to avoid overtime pay will now have to decide whether to reverse their decision or continue to pay as already determined.
Any reductions in employee salary now will hurt the employer-employee relationship but organizations can legally make changes as the 35k overtime salary threshold remains. HR teams will be left with a lot of disgruntled employees on their hands and will have to work harder to engage the workers if the pay decision is reversed.
It may be in every organization’s best interest to wait for the DOL’s response and see whether they make an appeal and how the proceedings go. Although the chances are low that the DOL will be able to reverse the court’s decision on the labor overtime rule, any rushed changes will have to be undone all over again if it wins its appeal.
With the DOL’s overtime rule being struck down, employers need to be careful about how they respond to the change and how their compensation plan for 2025 evolves. State regulations also need to be considered, and going forward, constant communication and consideration of the impact on employees is essential.
