UPDATE: November 15, 2024 – The U.S. District Court for the Eastern District of Texas just issued its ruling invalidating the entirety of DOL’s overtime final rule. In his ruling, Judge Jordan stated that while DOL has the authority to define and delimit the terms of the overtime exemption, “that authority ‘is not unbounded.’” He explained, “the minimum salary level imposed by the 2024 Rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties in favor of what amounts to a salary-only test.” He also said that the Department’s automatic updates to the minimum salary threshold every three years “violates the notice-and-comment rulemaking requirements of the [Administrative Procedure Act].”
In light of this decision, the minimum salary threshold is once again set to $35,568, and the threshold for highly compensated employees is set to $107,432 (current law).
DOL may appeal the decision to the 5th Circuit, but DOL under the new administration will almost assuredly abandon its defense of the rule. Over the next four years, it may choose to issue its own rulemaking to update the threshold.
What’s new: On April 23, 2024, the U.S. Department of Labor (DOL) published a final rule that raises the minimum annual salary threshold to classify an employee as exempt from overtime rules under the Fair Labor Standards Act (FLSA).
| Current | Starting July 1, 2024 | Starting July 1, 2025 | |
| Minimum Annual Exempt Salary |
$35,568 | $43,888 | $58,656 |
| Highly Compensated Employee Salary |
$107,432 | $132,964 | $151,154 |
Why it matters: The new rule’s dramatic increase in salary thresholds will require companies to reclassify some exempt employees and non-exempt and require justification for classifying some employees as non-exempt.
Tell me more:
- Salary threshold: Under FLSA, a worker may be exempt from overtime pay if paid on a salary basis over the minimum annual salary threshold and qualifies as an executive, administrative, professional, computer, or outside sales employee (commonly referred to as “EAP” exemptions), defined here. After January 1, 2025, all employees with a salary under $58,656 per year must be reclassified as non-exempt, and therefore receive overtime pay.
- Highly compensated employees: Highly compensated employees performing office or non-manual duties are not subject to the EAP test but are exempt from the FLSA overtime rules if they regularly perform at least one of the duties of an EAP. After January 1, 2025, all employees earning between $58,656 and $151,154 must qualify under all the factors defining an EAP employee.
- Incentive payments: Employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid on an annual or more frequent basis to satisfy up to 10% of the standard salary level.
- What’s next: The new rule has been challenged in court and injunctive relief has been to one employer in Texas (the government of Texas). In 2016, a federal court stayed President Obama’s attempt to dramatically increase salary thresholds and ultimately struck it down.
AED Action: AED filed comments on the proposed rule as part of the Partnership to Protect Workplace Opportunity (PPWO) and urged the Department of Labor to delay implementation to allow for judicial review in a PPWO letter.
While AED is hopeful the courts will strike down the new overtime rule, employers should plan to comply with the mandate. If you have specific questions about the rule and its application to your company, please contact your attorney for further guidance.