On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the Department of Labor’s (DOL) 2024 Overtime Rule. The ruling halts planned increases to salary thresholds under the Fair Labor Standards Act (FLSA), reverts thresholds to 2019 levels, and pauses future updates originally scheduled to take effect in 2025 and beyond. The decision has nationwide implications, affecting millions of workers and businesses. Employers now face questions about compliance, payroll adjustments, and the potential for future regulatory changes. To help clients, prospects, and others, WhippleWood CPAs has provided a summary of the key details below.
What is the 2024 Overtime Rule?
The 2024 Overtime Rule, introduced by the DOL earlier this year, aimed to extend overtime eligibility to approximately four million additional workers. Its key provisions included:
- Higher Salary Thresholds: The minimum salary for executive, administrative, and professional (EAP) employees would have risen from $35,568 annually to $58,656 by January 1, 2025.
- HCE Thresholds: The highly compensated employee (HCE) salary threshold would have increased from $107,432 to $143,988 annually.
- Automatic Adjustments: Starting in 2027, thresholds were to be updated every three years to align with wage growth and inflation.
According to proponents, the rule was intended to modernize overtime protections, address wage growth and cover a broader range of employees, particularly in industries such as retail, hospitality, and higher education.
The Court’s Decision
The Texas federal court ruled that the DOL exceeded its statutory authority in implementing the 2024 rule, invalidating it nationwide. This decision also nullified the temporary threshold increase from July 2024, which had raised the EAP salary threshold to $43,888 annually.
Employers can now revert to the thresholds established under the 2019 Overtime Rule:
- EAP Exemptions: $684 per week ($35,568 annually).
- HCE Exemptions: $107,432 annually.
The DOL has appealed the decision to the Fifth Circuit Court of Appeals. However, given the court’s conservative history, experts believe the appeal is unlikely to succeed. A new administration could also choose to drop the appeal and introduce revised regulations instead.
Real-World Impact: Ohio State University’s Response
Ohio State University provides an example of how the vacated rule has already affected employers. To comply with the proposed thresholds, the university implemented pay raises in two phases. Following the court’s decision, 306 employees who received raises under the second phase were notified that these adjustments would be rescinded starting January 1, 2025. However, raises implemented in July 2024 under the first phase will remain in place.
This situation illustrates the complexities businesses face when responding to regulatory changes. For organizations that proactively adjust payroll structures, the ruling creates uncertainty about how to manage costs, maintain compliance, and address employee expectations.
Implications for Businesses
The court’s decision has varied implications depending on whether businesses have already adjusted payroll systems or choose to wait for the legal outcome. Key considerations include:
- Current Thresholds: Employers can continue following the 2019 thresholds for EAP and HCE exemptions. This provides stability for businesses that have not yet implemented changes.
- Payroll Adjustments: Businesses that raised salaries to meet the 2024 thresholds must now decide whether to maintain those adjustments. While rolling back raises may reduce costs, it could also impact employee morale and retention.
- Future Regulations: The ruling creates uncertainty about the direction of overtime regulations. Denver area employers will want to stay informed and prepare for potential updates, particularly if a new administration revisits the issue.
- State-Level Compliance: Employers operating in states with higher salary thresholds than the federal rule must continue adhering to local requirements.
Contact Us
The court’s decision to vacate the 2024 Overtime Rule means employers will continue to follow the 2019 thresholds for now. While this may ease immediate concerns about labor costs, businesses will want to stay informed about potential regulatory updates. If you have questions about the information outlined above or need assistance with payroll compliance or another accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.