Changes to Overtime Exemption Rule

Earlier this year, Beers Mallers provided a post about a change in the overtime rules imposed by a new regulation issued by the United States Department of Labor. On Friday, November 15, 2024, a federal judge in Texas vacated the rule. Now employers throughout the entire United States do not have to comply with the salary increases.

The regulation concerns the Administrative, Executive and Professional (EAP) exemptions to overtime. To be exempt from overtime, an employee must have a job with duties included in an EAP exemption AND must earn a sufficient salary. If an employee does not meet BOTH, the employee is entitled to an overtime rate of time-and-a-half for any hours that are worked in excess of 40 hours in any work week.

The proposed regulation increased the salary level in two incremental steps:

By July 1, 2024 – employees must be paid $844 per week or $43,888 annually.

By Jan 1, 2025 – employees must be paid $1,128 per week or $58,656 annually.

The Texas District Court did not previously stay the enforcement of the two-step level on a nationwide basis. Many employers likely provided salary increases to meet the July 1 level to avoid violating the new rule or began paying overtime. However, with the November 15, 2024 order, the District Court vacated the updated salary rule on a nationwide basis. The order also vacated the rule as it applies to the Highly Compensated exemption (HCE).

Indiana employers are now faced with ongoing questions as a result.

Do employers continue to provide any salary increases on January 1?

Do employers rescind any increases provided on July 1?

Do employers continue to pay overtime based on the proposed changes?

If an employer used a bonus program to meet the increased level, how does it handle the bonus now that the July 1 increase was invalidated as well?

Furthermore, for planning purposes, in 2016 employers were faced with a similar regulation that was challenged, and a salary increase was finally implemented in 2019. Will a similar increase occur in a year or two after the new administration starts to implement its own policies?

If you have any questions about how the new case vacating the rule impacts your business, you should contact your Beers Mallers counsel. Additional information about the relevant duties test can be discussed as well to make sure employers are in compliance with the overtime rules.