The Miracles of Overtime

The Miracles of Overtime

Well, it’s been another wild week, capped off by the election of the first American Pope, Villanova grad Robert Francis Prevost. Now, I know, I know – “miracles” are overused in sports, and, yes, there are (probably) more important things happening in the world . . . that being said, there are a few former Villanova students playing in a basketball series right now, and if His Excellency wouldn’t mind, I’m sure they wouldn’t turn down a few extra prayers or a little – like, the minimum amount – of divine intervention. Just putting it out there.

And in other news – legal stuff! This week, we’re diving into a recent update from the DOL on overtime exemptions. Sit back, relax, and enjoy!

Latest Development: DOL Asks 5th Circuit to Halt Appeals Over Overtime Exemption Rule

In a fairly significant turn of events, the U.S. Department of Labor (DOL) has requested the 5th Circuit Court of Appeals to pause appeals concerning the 2024 overtime exemption rule. This move indicates that the Trump administration is reconsidering the rule, which sought to raise the salary threshold for white-collar exemptions under the Fair Labor Standards Act (FLSA). For now, the salary threshold set under the 2019 rule – $684 per week ($35,568 annually) – remains in effect, and the future of the 2024 rule is clear as mud as the DOL revisits its stance. This latest action underscores the ongoing shifts surrounding overtime rules and highlights the continued importance of understanding how the salary basis test impacts employee classifications.

Some background here: The DOL’s 2024 rule was introduced under the Biden administration and aimed to significantly increase the salary threshold for exemption from overtime. It proposed raising the minimum salary to $58,656 annually ($1,128 per week) by 2025, with automatic increases every three years starting in 2027. This change – amounting to what would essentially be doubling the prior minimum salary overnight – would have massively expanded overtime eligibility, potentially affecting millions of salaried employees nationwide who previously qualified as exempt based on their earnings alone (more on that later!). Predictably, this rule was immediately challenged in court, and federal district courts in Texas (of course) blocked it.

The Trump administration’s move to pause the appeals signals a shift in the legal strategy, with the DOL signaling it will reconsider its position on the rule. As a result, the $684 per week salary threshold remains in effect for now. For employers, this means that current exemption rules continue to apply.

Why does all this matter? As you please god hopefully likely know, employees are either exempt (boo, no overtime) or nonexempt (hooray, overtime). To be classified as exempt, employees must generally meet the salary basis test, meaning the employee must earn at least the minimum salary required under the FLSA. If an employee earns below the salary threshold, they are automatically entitled to overtime pay. There is no further analysis needed as to job duties or anything like that. Do not pass Go. Yes collect overtime.

It’s also important to remember that it’s not enough to pay an employee an amount over the threshold, but that the amount be a “salary”, meaning a fixed amount per week. You please remember and show us you actually read these things likely recall the Helix Energy Solutions Group, Inc. v. Hewitt case, decided by the Supreme Court (SCOTUS) a few years ago, where SCOTUS ruled that an oil rig worker who was paid a daily rate was not exempt from overtime pay, even though he earned over $200,000 annually. The Court emphasized that employees must be paid on a salary basis, meaning they must receive a predetermined amount each week, irrespective of the number of hours worked.

Similarly, there was a recent case from the 6th Circuit Court of Appeals where the court ruled that an employee’s pay, which was guaranteed weekly but based on a daily rate, did not meet the salary basis test for exemption. Despite receiving a fixed weekly amount, the pay was considered contingent on the number of days worked, which violated the principle that exempt employees must receive a predetermined amount each week, regardless of hours worked.

. . . and did we mention that it’s equally important to be mindful of state-specific legislation, as many states have adopted their own exemption rules that are significantly more stringent than the federal standards? While these developments were definitely being watched by employers around the country, the impact varied greatly depending on where you worked. And you’ll never guess which states have local laws that are significantly more stringent than the federal level! Yes, in places like California – where the salary threshold for exempt classification is currently $68,640 per year – this DOL story was being followed about as closely as an atheist was following the conclave (that being said – ‘Merica).

So, what should you do? As always, now’s always a good time to double-check your company’s classification practices, ensuring compliance with both federal law and local law when more stringent. Misclassifying employees could cost you big time, with backpay, penalties, and possible class actions. If you’re unsure about how to classify your employees or how the changing regulations might affect your business, or if you just want a friendly and privileged ear, give us a call.

Have a great weekend, everyone (except the Boston Celtics)! And as always, if you’ve got questions, you know we’ve got answers.

~ The W + K Team