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The 2024 FLSA Overtime Exemption Increase Has Been Blocked – Here’s What Employers Should Know

A Texas Court has blocked the Department of Labor’s increase in overtime exempt salary requirements for all employers nationwide. The now-defunct final rule initially took effect in July 2024.

Applies to: All Employers Subject to the FLSA
Effective: November 15, 2024

Quick Look

  • The 2024 Final Rule increasing the overtime exempt salary requirements is invalidated.
  • Salary increases are not required for overtime exempt employees above the levels previously set by the 2019 Final Rule.
  • The DOL is prohibited from implementing automatic annual salary increases.

In State of Texas v. U.S. Dept. of Labor, the Federal District Court for the Eastern District of Texas essentially voided the U.S. Department of Labor’s (DOL) 2024 Final Rule increasing the overtime exempt salary test under the Fair Labor Standards Act (FLSA). The 2024 Final Rule increased the minimum weekly wage for overtime exempt employees to $844 on July 1, 2024. It was set to increase that amount further to $1,128 per week as of January 1, 2025, with automatic increases every three years beginning in 2027.

As a result of the Court’s ruling, the current minimum salary requirement for executive, administrative, and professional exemptions is now $684 per week, and the highly compensated exemption salary is now $107,432 per year. Employers will no longer be subject to the anticipated January 1, 2025 salary increase.

Previously in this case, the court issued an injunction against enforcement of the 2024 Final Rule for the State of Texas as an employer. Since then, the case was consolidated with other plaintiffs similarly challenging the rule. The court has now granted a summary judgment motion invalidating the 2024 Final Rule for all employers nationwide.

Why Did the Federal District Court of Eastern Texas Strike Down the DOL’s 2024 Final Overtime Rule?

Even though the text of the FLSA’s overtime exemption mentions no minimum salary requirement, based on its statutory authority to interpret the FLSA’s requirements, the DOL has considered salary in some capacity since the law’s inception in 1938. The court understood this to mean that the fundamental aspects of the salary-level test must be applied by the DOL in a manner consistent with “serving only the purpose of separating exempt from nonexempt employees, not improving the status of such employees.” Moreover, the exempt minimum salary requirement must be a “reasonable proxy” for an employee’s exemption status, indicating that there must be a reasonable correlation between the two.

Although the court acknowledged that, in Mayfield v. U.S. Dept. of Labor in September of this year, the Fifth Circuit confirmed that the DOL’s authority to “define and delimit” the overtime exemption “includes the authority, within limits, to impose a salary-level test to qualify for the exemption,” the 2024 Final Rule nonetheless exceeds the DOL’s authority because it increases the minimum salary for the overtime exemption to a level that effectively displaces the duties-based test required by the FLSA with a predominant salary-level test. Additionally, based on the statutory language of the FLSA, the court said that the DOL can only change overtime exempt status requirements by the active rulemaking process for enacting regulations, which prohibits the DOL from implementing automatic increases.

While the DOL may appeal this ruling to the Fifth Circuit, it is not expected to be pursued following the upcoming change of the presidential administration.

In its ruling, the court looked at each of the three components of the 2024 Final Rule. First, the July 1, 2024 increase from $684 per week to $844 per week was found to be disproportionate to the typical percentage of employees historically impacted by the DOL’s salary test increases. Second, the January 1, 2025 increase was based on a metric different from the DOL’s historical practice. The court said “the 2024 Rule is out-of-step with both the [DOL]’s past practices and the historical screening function of the salary-level test,” as it screens out substantial percentages of employees who meet the duties test. The automatic increase beginning in 2027 is something the DOL has historically asserted was not within its power. More importantly, the language of the FLSA specifically requires the DOL to follow a specific process when implementing regulations, which the automatic increase seems to circumvent.

As a result, the current minimum salary requirement for executive, administrative, and professional exemptions is now $684 per week. Similarly, the highly compensated exemption salary is now $107,432 per year. Employers are not subject to the anticipated January 1, 2025 salary increase. For those who already increased workers’ salaries on July 1, 2024, the least disruptive course of action would be to continue to maintain those salaries. Employers wanting to reduce exempt employee salaries to the 2019 Final Rule levels should consult with their legal counsel as there are a number of factors to consider, such as equal pay requirements, nondiscriminatory selections, legitimate business interests, and advance notice and timing requirements. Note that reductions may only be made to employee salaries on a prospective or going-forward basis, not on a retroactive basis for wages already earned. Also keep in mind that some states have higher exempt salary requirements than what is required under the FLSA, such as Alaska, California, Colorado, Maine, New York, and Washington, and may not be impacted by this ruling.

While the DOL may appeal this ruling to the Fifth Circuit, it is not expected to be pursued following the upcoming change of the presidential administration. Employers should continue to look for updates on this topic.

Action Items for Employers

  1. Review planned 2025 salary increases in connection with this ruling.
  2. Review any prospective salary reductions with legal counsel for compliance.

Looking for additional compensation-related guidance for your organization? The 2025 Compensation Planning Toolkit can help.

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