(This column originally appeared in the Inquirer)
Overtime compensation rules are changing — again — but this time they’re going in reverse.
In April, the Biden Administration issued its final rules regarding overtime pay.
Under the old regulations, salaried employees who earned more than $35,568 annually were not entitled to overtime pay when they worked more than 40 hours per week. That compensation level was lifted to $43,888 on July 1, and was scheduled to increase again to $58,656 on Jan. 1, 2025. The U.S. Department of Labor estimated that “millions of workers” would be entitled to additional pay.
But that outlook now looks less likely. In November, a Texas federal court found the new overtime rule “exceeds the Department of Labor’s authority.” Last week the Department appealed the decision, but as of now the overtime rule is suspended.
Most legal experts expect the incoming Trump administration to not pursue the Biden Administration’s appeal and instead let the overtime threshold revert back to $35,568. However, this is not guaranteed.
President-elect Donald Trump’s proposed labor secretary, Lori Chavez-DeRemer, is a longtime supporter of unionization and workers’ right to organize. Although her intentions haven’t been publicly disclosed there is still a scenario where she is confirmed by the U.S. Senate and continues appealing the Texas court’s decision.
“We need to continue to monitor the situation,” said Tammy Tyler, manager of employment law compliance risk at Paychex, a payroll processing company. “The new administration could withdraw the appeal and — depending on who heads the Department of Labor — possibly undergo rulemaking to draft a new overtime rule.”
If you’re running a business, this creates a lot of uncertainty. Do you comply with the new rule, even though it’s still up in the air? Or do you revert your overtime pay policy?
Should you roll back changes?
If you’ve been waiting for the outcome of this case and the presidential election before making any changes to your overtime pay policy then one option is to continue with the same policy that was in effect before July 1.
But if you’ve already taken steps to comply with the July 1 increase then you can roll these changes back. However, this means removing potential extra pay from employees, which could create resentment. Walking back a previously announced benefit is never popular.
Claude Schoenberg, a labor attorney based in Bala Cynwyd, is concerned that many employers are in this predicament because they’ve already responded to the increase by either paying more overtime wages or reclassifying employees to hourly pay.
“Wage changes initially imposed by the vacated rule have already been made by many employers,” he said. “I don’t know any employer who plans to convert employees back from hourly now that the rule is vacated and that presents a challenge for companies that have made these wage changes.”
“Employers that previously adjusted the salaries or exemption status of employees are advised to consult with counsel before considering whether to rescind those changes,” said Nina Markey a labor and employment attorney based in Philadelphia.
They should also know that the ruling doesn’t affect state laws with higher overtime thresholds, Markey added. Those include Alaska, California, Colorado, Maine, New York, and Washington.
Or continue to comply with the new rules?
If you’ve already implemented these changes to your overtime policy, you could continue to offer that extra benefit to your employees going forward. Some may even be planning to go ahead with the increased overtime-eligibility threshold of $58,656 to comply with the now-stayed federal rule for 2025.
The overtime debate may be temporarily suspended, but the rule could be rewritten or readdressed by Chavez-DeRemer or future labor secretaries. Payroll processors like Paychex are advising their customers to be cautious.
“Next steps for employers largely depend on what changes they may have already implemented in advance of July 1,” said Tyler, of Paychex. “Consultation with legal counsel is recommended, particularly when considering changes in salary levels or employee classifications.”
