On Nov. 15, a federal court decision blocked the planned increase in the salary threshold for white-collar overtime exemptions. The threshold, which was set to rise to $58,656 annually on Jan. 1, 2025, will remain at the 2019 level of $35,568 a year. The planned increase to $43,880 that many employers already implemented on July 1, 2024, was also struck down.
The U.S. District Court for the Eastern District of Texas vacated the overtime rule, and this new ruling applies nationwide. The court criticized the substantial salary threshold hike, arguing that it would effectively replace the duties test for white-collar exemptions.
The court also rejected the rule’s provision for automatic salary threshold increases every three years, ruling that it violated the Administrative Procedure Act’s notice-and-comment requirements. In its decision, the court concluded that the 2024 rule "overstepped."
Implications for Employers
While some business owners and HR professionals may welcome this decision as reducing compliance burdens, others face new challenges. Employers who increased salaries to meet the July 1 threshold must now determine how to proceed. Reducing salaries isn’t a practical option, especially if retaining valuable employees is a priority. In many cases, their current pay structure will guide the way forward.
“The salary threshold is intentionally set at a low level to account for regional differences and is not a substitute for an analysis of an employee’s duties,” the court noted.
Conversely, employees who remained below the July 1 threshold and were reclassified from exempt to nonexempt status might be switched back to exempt. Ultimately, organizations must consider their budget, labor laws, and employee relations when making these decisions.
Revisiting Job Classifications
Employers may need to reevaluate employees whose job duties or classifications were recently adjusted. The combination of a duties test and the salary threshold remains the most reliable framework for determining exemption status:
- Executive Exemption: Employees must primarily manage the enterprise or a recognized department or subdivision. They must regularly direct the work of at least two employees and have the authority to hire or fire, or their recommendations on employment decisions must carry significant weight.
- Administrative Exemption: Employees must primarily perform office or non-manual work directly related to the management or general business operations of the employer or its customers. They must also exercise discretion and independent judgment on matters of significance.
- Professional Exemption: Employees must perform work requiring advanced knowledge in a field of science or learning, typically acquired through prolonged, specialized instruction. This category includes highly skilled fields such as teaching, computer analytics, or engineering.
Ultimately, employers should assess their workforce to ensure compliance while supporting organizational goals.