ARTICLE | December 10, 2024
Authored by FMF&E
On November 15, 2024, U.S. District Judge Sean Jordan in Texas struck down the Biden administration's overtime rule, which was set to take effect in January 2025. The decision halts a regulation that aimed to raise the salary threshold for overtime exemption from approximately $35,500 to $58,600 annually. If enacted, the rule would have required employers to pay overtime to salaried employees earning less than $1,128 per week.
Judge Jordan’s decision echoes concerns voiced by some business groups and employer advocates, who argued that the rule would impose undue financial burdens on small businesses, nonprofits, and industries with lower profit margins.
Let’s unpack what this means for employers and what to watch for in the months ahead.
What was the proposed overtime rule?
The Biden administration’s proposed rule sought to update the Fair Labor Standards Act (FLSA) by increasing the salary threshold under which salaried employees automatically qualify for overtime pay. Currently, employees earning more than $35,568 annually can be exempt from overtime if they also meet certain job duties tests. The new rule would have expanded eligibility to an estimated 4 million more workers by raising the threshold to $58,600.
This was not the first attempt to overhaul overtime pay rules. A similar effort in 2016 under the Obama administration proposed raising the salary threshold to $47,476 but was blocked by the courts. The 2019 rule implemented under the Trump administration settled on the current $35,568 threshold.
What happens now?
For now, the salary threshold for overtime exemptions remains at $35,568. Employers should continue to use this figure and the existing duties test as the baseline for determining whether salaried employees are exempt from overtime.
However, the story may not end here. The Department of Labor can appeal the ruling, but with the upcoming change in administration in January 2025, the future of this regulation is uncertain. If the DOL appeals, the case could work its way through the courts, but a new administration might deprioritize the effort or even withdraw the appeal altogether.
What should employers do in the meantime?
Employers should maintain compliance with the existing 2019 salary threshold and ensure they are correctly classifying employees under the FLSA’s exemptions. Misclassification of employees remains a major source of liability, and the penalties for non-compliance can be steep.
Also, prepare to communicate with employees. Those who were anticipating eligibility under the new rule may have questions. It may help to proactively notify employees of the recent ruling and if it will affect their pay or classification.
If you have questions about how this ruling impacts your business or need guidance on employee classification, please contact our office.
The FMF&E team is eager to learn about you and your business. We are a Central New York based certified public accounting firm serving nationwide clients since 1980. Our experienced and dedicated team provides audit, accounting, tax and consulting services to businesses throughout the United States. Our clients include many energy companies, financial institutions, construction and real estate developers, manufacturers, professional services, and wholesalers and distributors.
FMF&E is a team of over 85 highly skilled and motivated professionals. Our team members possess additional highly valued industry certifications such as Certified Valuation Analyst, Certified Fraud Examiner, Certified Credit Union Internal Auditor, NAFCU Certified Compliance Officer, and more. Our growth has come from applying a strong results-oriented approach to servicing our clients.
For more information on how FMF&E can assist you, please email info@fmfecpa.com.