New Overtime Rule Kicked In This Month Amid Lawsuit

Beginning July 1, the pay threshold for determining who should receive overtime pay has gone up.

Under the Fair Labor Standards Act (FLSA), employees who perform bona fide executive, administrative, or professional duties are exempt from receiving overtime pay for anything beyond 40 hours in a week. Part of the formula for determining who can be exempted includes a minimum salary. Those making less must receive overtime compensation.

Effective July 1, that minimum salary increased from $35,568 to $43, 888, as stipulated by new overtime rules from the U.S. Department of Labor (DOL). The agency has other increases planned: On Jan. 1, 2025, the threshold will rise to $58,656. Then, beginning July 1, 2027, salary levels will update every three years using up-to-date wage data.

In response, a coalition of business groups, including the Associated Builders and Contractors, the National Association of Wholesale Distributors, and the National Association of Home Builders, has filed a lawsuit in the U.S. District Court for the Eastern District of Texas. It alleges that the DOL exceeded its authority and “acted arbitrarily and capriciously.” The suit claims the 2024 rule will deprive millions of employees of their exempt status and makes “salary rather than an employee’s duties” determinative of whether an employee should be exempt from overtime pay.

The organizations said that the new rule will hurt both companies and their employees.

“Many employers will lose the ability to effectively and flexibly manage their workforces ... ,” the lawsuit asserts. “Millions of employees ... will have to be reclassified from salaried to hourly workers, resulting in restricted work hours that will deny them opportunities for advancement and hinder their job performance — to the detriment of their employers, their customers, and their own careers.”

The NAHB says the change “overwhelms the original intent of the overtime exemption, which was to exempt employees in executive, administrative, and professional jobs from overtime pay requirements.”