Overtime Rule Reversed: What the Revised OT Exemption Threshold Means for Nonprofits

A Texas federal court has reversed the U.S. Department of Labor’s increase in the overtime exemption salary threshold that went into effect July 1, 2024. The ruling reduces the threshold to qualify for overtime exemption back to its original 2019 level of $684 per week or $35,568 per year, halting the planned threshold increases set for January 1, 2025.

This may sound like good news for nonprofits who see the ruling as a budget reprieve given the potential to reduce their compensation overhead in 2025. However, it also effectively means a pay cut for employees who fell within the new higher threshold and will now be exempt from overtime pay.

This can potentially impact employee retention, especially considering the stiff competition for talent from for-profit organizations. Nonprofit organizations should exercise caution in reducing hours for employees who fall back into the gap.

Here are a few tips to consider before changing compensation policy due to the ruling.

1. Resist the urge to reverse course. 

If the budget allows, it is best not to repeal overtime rates for those who became newly eligible on July 1. The new ruling does not set a mandate, it sets a minimum.

2. Include morale and retention considerations in decision-making. 

If you have switched to hourly pay or increased compensation to exempt employees from overtime pay, technically you can reverse that, but consider what that might mean for morale and retention.

3. Duties matter more than dollars. 

The official exemption rule has more to do with whether or not employees perform executive, administrative, or professional duties, and the salary threshold merely acts as a de facto distinction—which is why the Texas judge vacated the 2024 rule that raised the minimum.

4. Re-evaluate workload.

If employees frequently work overtime, it may be time to reconsider your staffing level. Alternatively, are there areas where you might improve efficiency or automate tasks to avoid asking staff to work overtime?

5. Remember that state law may still supersede the federal statute.

Some states already have thresholds that exceed the federal level, and more states may raise their threshold in response to this ruling. Stay on top of changes within your jurisdiction(s) to maintain legal compliance. Nonprofit leaders should consult legal counsel to clarify the law and their organization’s position.

6. Be sensitive, but also be clear. 

Nonprofit leaders need to be proactive and compassionate in communicating any changes in compensation policy with their staff. It is natural for employees to be concerned with the possibility of what can amount to a pay cut for some or all of the staff.

Reiterate and demonstrate that you value employees’ loyalty and commitment to the mission, whether through compensation or other means.

Designation of an employee’s responsibilities and duties and its impact on compensation is of frequent concern for nonprofit employers and employees. Career Blazers Nonprofit Search will continue to send updates as the overtime ruling progresses through the anticipated appeals process.