A federal district court overturned the overtime rule that would have raised the minimum salary level for exempt employees on January 1, 2025.
What’s more, an increase that already took effect on July 1, 2024, has been vacated.
So, the salary threshold for executive, administrative and professional (EAP) exempt employees has dropped back down to at least $684 per week, which equates to $35,568 annually.
But that’s not all: The ruling also did away with the requirement to pay highly compensated employees (HCEs) more per year to classify them as exempt.
Instead, employers need to pay HCEs the amount in place at the beginning of 2024 — i.e., $107,432 per year — for them to be exempt from overtime.
Furthermore, you won’t have to brace yourself for the automatic salary adjustments that would have occurred every three years. Reason? That new and controversial provision included in the Dept. of Labor’s (DOL’s) April 2024 rule has also been revoked.
Salary Level in Flux
On November 15, 2024, a court in the eastern district of Texas issued its ruling, stopping the final overtime rule in its tracks.
If that court sounds familiar, that’s because in June 2024, it issued a preliminary injunction after the state of Texas brought a lawsuit against the DOL. The judge found that the DOL had exceeded its authority under the Fair Labor Standards Act (FLSA).
However, at that time, the impact of State of Texas v. U.S. Dept. of Labor was limited only to Texas as an employer.
Quickly afterwards, business organizations joined the legal fight against the final overtime rule, and that led to the cases being consolidated.
The business organizations pushed forward the argument that the DOL had overstepped its bounds with its 2024 rule on the minimum salary requirements. Their reasoning? The duties test is just as much a part of the FLSA as the salary-level test. But they said the duties test had been effectively displaced when the DOL set the minimum salary for exempt employees so high.
How high? The salary threshold was set to reach $1,128 per week, which equates to $58,656 annually, at the start of 2025.
The 2025 increase was part of a two-phase boost the DOL had in store for EAP exempt employees.
The first phase occurred on July 1, 2024, when the DOL raised the minimum salary requirement to $844 per week ($43,888 annualized).
But now, the floor has plunged back down to the level where it sat when 2024 began. In fact, it’s been at the $35,568-per-year level since 2019.
Overtime Rule Fallout
Nothing is set in stone at this point, due to questions such as these:
- Will the DOL appeal the ruling the Fifth Circuit Court of Appeals?
- Will the DOL reverse course? After all, the judge instructed the agency to give further consideration to the rule in light of the overtime ruling.
- Will the Trump administration issue its own rule on overtime once he’s in office? As you may recall, that’s what happened during President Trump’s first term, in response to an Obama-era rule (which — with striking similarities to the current situation — called for a huge jump in the EAP salary level but was blocked by a federal court).
In the short-term, employers are facing tough payroll decisions. For example, if you’ve already increased employees’ salaries — whether to $43,888 or $58,656 — will you keep them at that level?
Needless to say, salary cuts don’t generally go over well with employees.
Yet, in some cases, salary reductions will be necessary to stay afloat. If you find yourself in that situation, consider looking for other ways to incentivize employees. One popular idea is allowing employees to work a four-day workweek. Not only can this improve employees’ motivation on the job, but it can also reduce their commuting costs, allowing them to keep more money their pockets.
