Earlier this year, the Department of Labor (“DOL”) announced increases to the salary threshold for the “bona fide executive, administrative, or professional” exemption and the “highly compensated employee” exemption to the overtime requirements under the Fair Labor Standards Act (“FLSA”). However, on November 15, 2024, a federal district judge vacated the DOL’s new regulation. Therefore, the impending increases set for January 1, 2025 will not take effect, and the salary thresholds will return to the pre-July 1, 2024 levels.

The 2024 Rule

Under the FLSA, employers are required to pay employees time-and-a-half for time actually worked in excess of 40 hours in a workweek unless an exemption applies. Two of those exemptions are the “bona fide executive, administrative, or professional” exemption (also referred to as the “white collar” exemption) and the “highly compensated employee” exemption. Each of these exemptions have two elements: (1) the duties test and (2) the salary-threshold test.

The DOL’s 2024 Rule planned to increase the salary threshold for each exemption in three phases. First, as of July 1, 2024, the DOL increased the salary threshold for the white collar exemption from $684/week (which is $35,568 annualized) to $844/week (which is $43,888 annualized), and for the highly compensated employee exemption from $107,432/year to $132,964/year. Second, the amounts were set to increase again on January 1, 2025 to $1,128/week (which is $58,656 annualized) and $151,164/year. Third, the 2024 Rule included an automatic-indexing mechanism that would increase the salary-threshold every three years without further action from the DOL.

Effects of the Federal Court Order

On November 15, 2024, a federal district judge on the United States District Court for the Eastern District of Texas vacated the DOL’s 2024 Rule and returned the salary thresholds to $684/week for the executive, administrative, and professional exemption and to $107,432/year for the highly compensated employee exemption. The Court reasoned that the increases to the salary-threshold test, in essence, displaced the duties test, which is intended to be the predominant element for determining whether an employee is exempt from overtime pay. Based on this reasoning, the Court held that the DOL exceeded its Congressional authority when it increased the salary thresholds by even the July 1, 2024 amounts.

Take Action

Employers should be aware that, at this time, federal law will not require them to change the exempt status of employees that meet the duties test but make a weekly salary less than $1,128 as of January 1, 2025. However, employers should contact counsel and also consider other ramifications before adjusting salaries to pre-July 1, 2024 levels. Additionally, employers should monitor this case to see if the DOL appeals the district court’s judgment.

Also, of note, the Court’s decision to vacate the DOL’s 2024 Rule does not affect the wage and hour requirements promulgated through state or local laws. Accordingly, employers in states and localities with different criteria and exemptions than the FLSA for overtime pay should continue to comply with all applicable requirements.