A federal district court has recently vacated a new final rule issued by the U.S. Department of Labor (DOL) in April 2024 (State of Texas v. U.S. Department of Labor, No. 4:24-CV-499, E.D. Tex., November 15, 2024). The rule was expected to expand the number of workers eligible for overtime pay under the federal Fair Labor Standards Act (FLSA) by 4 million people by raising the salary threshold for exempt workers.
Although the DOL filed a notice of appeal on November 26, 2026, the rule is unlikely to be resurrected under the upcoming Trump administration. However, many employers already took measures to comply with the rule, which began phasing in on July 1, 2024. Here's what you need to know going forward.
The FLSA generally requires employers to pay nonexempt workers 1.5 times their regular pay rate for hours worked per week that exceed 40. But bona fide executive, administrative and professional (EAP) employees are exempt.
The EAP exemption applies when:
Highly compensated employees (HCEs) may also be exempt if their annual compensation (including incentive payments and nondiscretionary bonuses) exceeds a prescribed threshold. HCEs perform office or nonmanual work and regularly carry out at least one of the duties required for the EAP exemption (rather than primarily performing such duties).
The DOL's final rule addressed the salary threshold for EAP employees, gradually increasing it. On July 1, 2024, most salaried workers who earn less than $844 per week or $43,888 per year (up from $684 per week or $35,568 per year), became eligible for overtime pay. On January 1, 2025, the standard threshold would have increased to $1,128 per week or $58,656 per year.
The new rule also boosted the threshold for HCEs. Before July 1, 2024, HCEs were exempt if paid annual compensation (including incentive payments and nondiscretionary bonuses) of at least $107,432 per year. The threshold rose on July 1, 2024, to at least $132,964 per year. On January 1, 2025, it would have been increased to at least $151,164 per year (excluding nondiscretionary bonuses and incentive payments).
The U.S. District Court for the Eastern District of Texas temporarily blocked the rule in June 2024 — but only as it applied to the state of Texas in its capacity as an employer — pending its ruling on the state's underlying legal challenge. Several business groups then asked the court to vacate the rule for all employers.
The court issued its decision on November 15, 2024. It determined that the salary threshold changes exceeded the DOL's authority. According to the court, the EAP exemption requires that an employee's status turn on duties, but the new rules made salary predominant over duties. As a result of the decision, the salary thresholds for EAP employees and HCEs return to the levels in place before July 1, 2024. These levels were set under the first Trump administration, and the previous rules will likely continue in President-Elect Trump's second term.
Although the ruling is favorable to employers, it may be problematic because employers already may have made significant adjustments to comply with the vacated rule. They may have reclassified employees whose salary fell below the new threshold as nonexempt or increased salaries to retain exempt status for others. Many also informed employees about the changes that were set to go into effect on January 1, 2025.
With the thresholds now lower, affected employers might consider rolling back such changes. However, any adjustments should be weighed against the effect on morale — especially if employees were informed that overtime would expand further on January 1, 2025. The labor market remains tight, and disappointed employees could end up leaving.
Employers who opt to roll back previous changes must comply with state laws that require advance notice of pay changes. Even in the absence of a notice law, employers should carefully communicate with employees, taking into account earlier communications on the issue.
For example, if you presented the expanded overtime eligibility not as a federal mandate but as an internal choice, how will you explain your reversal? If you were clear from the outset that the changes resulted from a legal requirement, it might be easier to justify changes by citing the court ruling.
You might, however, prefer to simply stay the course, particularly if you're not certain an employee's role satisfies the duties prong of the exemption test. After all, satisfying the salary threshold alone doesn't trigger the exemption. Bear in mind, too, that employees who find their overtime or salary cut after becoming accustomed to the extra money may begin to question if their duties make them nonexempt.
Important: While the court's ruling returned the federal salary level to its previous threshold, some states have salary level thresholds that exceed those levels. These more restrictive levels remain in effect.
For some employers, the path forward regarding overtime is unclear. Contact your financial advisors to help determine the best course of action, taking into account budget constraints and other factors.
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