Federal Court Strikes Down Salary Threshold Rule for White-Collar Overtime Exemptions
On November 15, 2024, the U.S. District Court for the Eastern District of Texas ruled against a Department of Labor (DOL) regulation that increased the salary threshold for the white-collar overtime exemption under the Fair Labor Standards Act (FLSA). The decision invalidates the salary threshold increases that were set to take effect in July 2024 and January 2025, as well as the provision for automatic updates to the threshold every three years.
What Happened?
The FLSA generally requires overtime pay for employees working over 40 hours a week unless they qualify for exemptions like the executive, administrative, and professional (EAP) roles. To qualify for this exemption, employees must meet three criteria:
Salary Basis Test: Be paid a fixed amount regardless of hours worked.
Duties Test: Perform certain exempt job duties.
Salary Threshold Test: Earn a minimum weekly salary.
In 2024, the DOL attempted to increase the salary threshold from $684 per week ($35,568 annually) to $844 per week ($43,888 annually) in July 2024 and $1,128 per week ($58,656 annually) in January 2025. The rule also included automatic salary updates every three years.
However, the court determined that these changes exceeded the DOL's authority, as they effectively prioritize salary over job duties. The automatic updates were also ruled unlawful for bypassing required regulatory procedures.
Implications for Employers
July 2024 Increase Nullified: Employers who adjusted salaries to meet the now-invalidated threshold should consult legal counsel.
January 2025 Increase Blocked: The scheduled FLSA increase will not occur.
State Variations Remain: Some states, such as Alaska, California, Colorado, Maine, New York, and Washington, maintain their own higher salary thresholds, so employers should stay informed of local regulations.
What’s Next?
While the DOL’s rule may be appealed, the outcome of that appeal or future regulations under different administration policies could impact your compensation strategy. It’s crucial for employers to stay agile and ready to adjust their programs if new rules are introduced in the future.
PRJ Consulting remains committed to helping organizations navigate complex wage and hour compliance issues. For guidance on how this ruling impacts your compensation strategies, reach out to our team at PRJ Consulting.