On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the U.S. Department of Labor’s (DOL) final regulation, increasing the salary threshold for the “white collar” overtime exemption under the Fair Labor Standards Act (FLSA). The court ruled the regulation exceeded the agency’s statutory authority, blocking all aspects of the rule nationwide. This decision nullifies both the first salary increase that took effect in July 2024 and the planned January 1 increase with automatic adjustments every three years. The threshold reverts to $684 per week ($35,568 per year) and $107,432 per year for highly compensated employees.
Background
The now-invalid DOL rule raised the salary threshold to $844 per week ($43,888 per year) in July 2024, with a planned increase to $1,128 per week ($58,656 per year) on January 1, 2025. Under the FLSA, workers must meet the salary level, duties test, and salary basis test to qualify for the white-collar exemption. Employees who do not meet these requirements are non-exempt employees and entitled to overtime pay (time-and-a-half) for hours worked beyond 40 per week.
Next Steps for Employers
The DOL may appeal, but the pending transition to a Trump administration makes the legal future uncertain. Employers must now evaluate their options, including:
- Reviewing Salary Adjustments. Employers who increased salaries to comply with the July 2024 threshold must decide whether to maintain the changes or revert to prior levels. Consider the impact on employee morale, productivity, and overall compensation strategy. A middle-ground option might be to freeze salary increases temporarily.
- Ensuring Consistency to Avoid Discrimination Claims. Pay decisions should be applied consistently across similarly classified employees to mitigate potential claims. Use objective criteria—such as experience, skills, job responsibilities, and location—and document the decision-making process thoroughly.
- Reassessing Exemption Status. Employers may reinstate exempt status for employees reclassified as non-exempt solely due to the July 2024 increase. However, confirm compliance with the duties test and salary basis requirements. Exempt employees must primarily perform executive, administrative, or professional duties and be paid a predetermined, regular salary regardless of work quality or quantity. Additional information on exemptions and these requirements is available on the DOL’s website.
- Monitoring State and Local Laws. Some states, including Alaska, California, Colorado, Maine, New York, and Washington, have stricter exemption requirements and higher salary thresholds than federal rules. Employers must comply with whichever law is more favorable to the employee.
- Seeking Legal Counsel. Consult with legal advisors to ensure compliance with FLSA rules and related laws, including equal pay and pay transparency requirements. Develop clear communication plans to explain decisions to employees and maintain trust.
HR Works will continue to monitor developments and provide updates as additional information becomes available. Employers should stay informed and proactive in managing compliance strategies amid ongoing regulatory uncertainty.
How HR Works Can Help
HR Works offers comprehensive compensation and benchmarking services. Virtual HR Helpline subscribers receive five free benchmarks each year (with the option to purchase the additional benchmarks for a fee). Current HR Works clients may contact their dedicated HR Consultant, and Virtual Helpline subscribers can contact the helpline at hrhelp@hrwork-inc.com or 1-888-668-1271 for additional assistance. Non-HR Works clients who would like to learn more about these services and how to leverage our compliance expertise and support may contact us at info@hrworks-inc.com or call 1-877-219-9062.
