Salary Thresholds Reset for Overtime Exemptions

On November 15, 2024, the United States District Court for the Eastern District of Texas, set aside and vacated the U.S. Department of Labor’s (DOL) 2024 Rule increasing the minimum salary threshold for employees under the Fair Labor Standards Act (FLSA). Accordingly, the scheduled increase in the overtime salary threshold, previously set for January 1, 2025, will no longer go into effect. Further, the July 1, 2024, increase already in effect is also invalidated, moving the salary threshold back to the level set in 2019.

The FLSA requires employers to pay overtime to employees who work more than 40 hours in any given workweek unless the employee falls under a specific exemption. The most common exemptions are the executive, administrative, and professional exemptions. These exemptions use a three-part test that requires (1) an employee’s primary work duties align with the duties described in each exemption, (2) an employee be paid on a salary basis where the employee’s pay is not changed by the quality and quantity of work performed, and (3) the employee’s pay meet the minimum salary threshold established by the DOL. Another exemption applies only to highly compensated employees. Under the highly compensated employee exemption, an employee (1) must “customarily and regularly perform[] any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee…” and (2) earn a salary at an even higher threshold set by the DOL. 

On April 23, 2024, DOL announced that it was increasing the salary level thresholds under the previously mentioned exemptions. The goal of this change was to increase worker compensation by either making more workers eligible for overtime or forcing employers to give raises to meet the new threshold. Prior to this change, the minimum salary threshold applied to workers making $684 per week ($35,568 annually). The 2024 change increased the minimum salary threshold to $844 per week ($43,888 annually) on July 1, 2024, and scheduled another increase to $1,128 per week ($58,656 annually) beginning on January 1, 2025. Under the rule, the salary threshold would automatically increase every three years. Finally, the 2024 Rule increased the salary threshold for highly compensated employees from the previous $107,432 annual salary threshold to $132,964 on July 1, 2024, and again to $151,164 on January 1, 2025.

In the court’s November 15 decision, Judge Sean Jordan of the United States District Court for the Eastern District of Texas found that the 2024 Rule would “‘effectively eliminate’” consideration of whether an employee performs “bona fide executive, administrative, or professional capacity” and instead establish a “salary-only” test. The court reasoned that the language of the FLSA explicitly required consideration of an employee’s duties and the DOL exceeded its authority by effectively creating a salary-only test. The court also noted that for the same reason, the DOL also exceeded its authority in increasing the threshold for highly compensated employees. The court similarly determined that the FLSA expressly requires that increases to the salary threshold be made through regulations in accordance with the Administrative Procedure Act, and therefore the DOL lacked the authority to set automatic increases as it did with the 2024 Rule. Based on its decision, the court vacated the 2024 Rule nationwide and remanded it back to the DOL for further consideration.

As a result of the court’s ruling both the July 1, 2024, increase, already in effect, and the upcoming January 1, 2025, increase have been nullified. In theory, the DOL could appeal this ruling. But with the Fifth Circuit and Supreme Court recently showing hostility towards the powers of executive branch agencies, an appeal seems questionable. Furthermore, the incoming Trump administration is almost certainly going to move DOL to a more employer-friendly posture. This means the DOL would most likely abandon any appeal before either the Fifth Circuit or the Supreme Court could rule. In short, this appears to be the end of the road for one of the Biden Administration’s signature worker-focused achievements.

Employers with questions about how the court’s ruling affects their business should reach out to Williams Mullen’s Labor, Employment and Immigration team, who will monitor all future developments.