Effective Immediately: Federal Salary Threshold Returns to Pre-July 2024 Levels
On November 15, 2024, a federal court in Texas rejected the Department of Labor's (DOL) recent changes to overtime pay rules. This ruling affects employers nationwide and returns overtime salary requirements to their previous levels. Here's what you need to know:
The minimum salary for overtime exemption returns to $684 per week ($35,568 per year)
The higher salary threshold that started July 1, 2024 is no longer legally valid
The increase in the overtime threshold scheduled to become effective on January 1, 2025, will not go into effect
The automatic three-year increase provision has been eliminated
Background
The Fair Labor Standards Act (FLSA) generally requires employers to pay overtime (time-and-a-half) to employees working more than 40 hours per week. However, certain white-collar workers can be exempt from overtime if they meet three specific requirements:
Receive a fixed salary regardless of hours worked ("salary basis test")
Perform primarily executive, administrative, or professional duties ("duties test")
Earn at least the minimum salary threshold ("salary threshold test")
In April 2024, the DOL issued final regulations raising the white-collar exemption salary threshold. The final rule raised the minimum salary in two steps:
July 1, 2024: $844 per week ($43,888 annually).
January 1, 2025: $1,128 per week ($58,656 annually).
The rule also increased the “highly compensated employee” (HCE) threshold from $107,432 to $132,964 as of July 1, 2024, and to $151,164 as of January 1, 2025, with automatic updates every three years.
The court ruled on the salary threshold increases set for July 1, 2024, and January 1, 2025, finding that the DOL exceeded its statutory authority by increasing the standard salary level too high and allowing for automatic adjustments every three years, effectively creating a rule based solely on salary rather than job duties as intended by law. The court vacated the salary increase that went into effect in July and the increase set for January, as well as the future automatic salary level increases for employers nationwide. As a result of the decision, the standard salary level for EAPs is now $35,568 and $107,432 for HCEs. Consequently, employees who lost their exempt classification because of the July 1 salary level increase may potentially qualify again for an exemption.
Important Considerations for Employers
This ruling significantly impacts how employers determine overtime eligibility for their salaried employees. The court's decision emphasizes that job duties, not just salary levels, should be the primary factor in determining overtime exemption.
Current Actions: While the July 2024 increase is legally invalid, carefully consider any changes to already-implemented salary adjustments, due to the impact on employee morale if salary increases are reversed.
State Requirements: Several states maintain their own, higher salary thresholds: Alaska, California, Colorado, Maine, New York, Washington. Employers in these states must continue following state requirements.
Engage Legal & Compliance Experts: Consult with your legal and compliance advisors to navigate these complex changes and ensure compliance against the following:
Reversing any salary increases made to comply with the July 2024 threshold
Making changes to employee classifications
Adjusting overtime policies
Looking Ahead
The DOL may seek to appeal the lower court’s decision to the Fifth Circuit Court of Appeals. However, with the upcoming change in presidential administration, it is predicted that the DOL would likely abandon any appeal and allow the lower court’s decision to stand. It is unclear whether the new administration will revisit some or all of the rule, repeal it entirely, or perhaps adopt a different formulation. Cottingham & Butler will keep readers apprised of current developments.