Overtime Rule Struck Down: What It Means for Your Payroll

The following article was first posted on Berchem Moses PC’s Labor and Employment Law Journal. It is reposted here with permission.

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The U.S. Department of Labor issued a rule earlier this year that required employers to pay their exempt workers a higher salary in order to maintain their status as “exempt” from minimum wage and overtime requirements.  

The rule phased in changes, with one salary increase occurring on July 1, 2024, and another occurring on Jan. 1, 2025, followed by automatic adjustments thereafter.  

A Texas court struck down the rule nationwide, stating that the U.S. Department of Labor had gone beyond its authority in creating the rule.  

What Does This Mean for Your Payroll?

Employers who paid their exempt executive, administrative, and professional employees less than $1,128 per week were affected by this rule change, facing the need to either increase salaries or treat these employees as non-exempt employees who would then be eligible for overtime.  

The court’s decision rolls back both the July 1, 2024, increase (to $844 per week) and the Jan. 1, 2025, increase (to $1,128 per week).  

Employers are only required to pay their employees $684 per week to meet the salary threshold requirements.

As a result, employers are only required to pay their employees $684 per week to meet the salary threshold requirements. (Some states, but not Connecticut, have higher salary level requirements.) 

Generally, employees must be paid on a salary basis and meet duties requirements as well to be deemed “exempt.”

The U.S. Department of Labor may appeal the decision and seek to reinstate the rule, but this is unlikely to result in any reinstatement before Trump takes office.  

The Trump administration is highly unlikely to fight to maintain the rule. 

What If We Already Made Changes?

If employers already made changes to comply with this rule, it is legally permissible to reduce an employee’s pay rate or convert the employee back to exempt status, with advance notice of the change.  

However, this can be difficult to carry out in practice due to the negative effects on employee morale.  

Delaying or reducing future pay increases instead of rolling back raises that have already been established may be more palatable.  

Delaying or reducing future pay increases instead of rolling back raises that have already been established may be more palatable.  

Collective bargaining agreements may also limit employers’ options.  

Employers should consult with counsel to ensure all changes are properly established and communicated.

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About the author: Rebecca Goldberg serves as senior counsel in Berchem Moses PC’s Milford office. She partners with human resources professionals and business managers to counsel them through the most challenging workplace situations, from harassment complaints to concerns about an employee’s mental or physical health.