Earlier this year, the Department of Labor (DOL) announced a rule intending to significantly raise the salary thresholds for overtime eligibility under the Fair Labor Standards Act (FLSA). However, on November 15, 2024, a Texas federal court struck down the rule, invalidating it nationwide effective immediately.
| UPDATE ON 2024 OVERTIME RULES: KEY TAKEAWAYS – A Texas federal court invalidated the DOL’s rule to raise overtime salary thresholds, effective immediately nationwide – The salary level for exemptions returns to $684 per week ($35,568 annually) – The highly compensated employee (HCE) threshold reverts to $107,432 annually – The DOL may appeal the ruling, but future changes could depend on upcoming federal administration actions |
Background on overtime laws
To be exempt from the FLSA minimum wage and overtime requirements, an employee generally must meet three tests:
- Salary basis test: Employee is paid a predetermined, fixed amount not subject to reductions based on work variations.
- Salary level test: Employee salary must meet a minimum specified amount.
- Duties test: Employee must perform executive, administrative, or professional duties.
The now-invalidated final rule proposed raising the salary thresholds for these exemptions in two phases:
- $844 per week ($43,888 annually) starting July 1, 2024
- $1,128 per week ($58,656 annually) starting January 1, 2025
It also proposed increasing the highly compensated employee (HCE) threshold to $132,964 annually in 2024 and $151,164 in 2025, with automatic updates every three years.
The court’s final decision on the DOL’s proposed 2024 overtime laws
The court ruled that the DOL exceeded its authority, stating that the salary level test overshadowed the duties test, which is a fundamental component of the FLSA exemptions. The decision also invalidated the proposed automatic updates to salary thresholds and applied equally to the HCE threshold increases.
Effective immediately:
- The salary level test reverts to $684 per week ($35,568 annually)
- The HCE threshold reverts to $107,432 annually, including at least $684 per week paid on a salary or fee basis
The DOL may appeal the court’s ruling
If an appeal is filed, an appeals court could either uphold or reverse the lower court’s decision. These proceedings could extend into the upcoming Trump administration, which might choose to withdraw an appeal or propose new rules entirely.
Implications for employers
Employers who preemptively raised salaries or planned increases for 2025 may now be reconsidering their strategies. If you’re planning to adjust compensation, consider the following:
- Consult legal counsel to discuss the implications of reducing salaries or halting planned increases to ensure compliance and mitigate risks
- Be aware that some states have stricter exemption tests than federal law; review both state and federal standards for compliance
- Notify employees promptly and in writing of any pay changes, adhering to local or state notification requirements
Strategic considerations for overtime rules in 2024
Although the court’s ruling invalidates the federal changes, employers should remain proactive:
- Ensure current employee classifications meet the duties and salary requirements under applicable laws
- Cloud-based payroll and time-tracking systems can help manage changes effectively.
- Monitor developments related to the DOL’s appeal or any new regulatory actions under the new Trump administration
The striking down of the DOL’s final rule introduces some uncertainty for businesses navigating overtime and exemption classifications. If you have questions about how these changes impact your business, contact us to schedule a call.