Overtime Overruled: 2024 Overtime Rule Vacated, Reverts to 2019 Threshold

The back-and-forth changes to the federal overtime rules are giving some HR departments whiplash. In mid-November, a federal court in Texas vacated and set aside the DOL’s final overtime rule announced in April. So, the January 1, 2025 salary threshold increase will not go into effect as scheduled.

The recent court ruling turns the clock back to 2019 on this aspect of salary thresholds for classifying workers. This last-minute change leaves many employers in an awkward position, as many salaries have already been raised (and workers have been reclassified) for the threshold increase that already happened back in July.

Although nobody knows exactly what to expect from the next administration in Washington DC, the 2024 changes appear to be gone . . . for now. Employers should be cautious about how they proceed regarding overtime rules, taking time to consider state regulations and employee morale.

Overtime rule timeline since 2016

The FLSA uses salary as just one out of multiple factors for classifying exempt workers. For example, the duties of white-collar workers helped define whether or not they should be exempt from overtime requirements in their executive, administrative, or professional roles.

• Back in the Obama era, the DOL made a similar attempt to raise the white-collar wage threshold to $47,476 per year. That FLSA change was struck down on November 22, 2016, keeping the threshold at $23,660.
• In 2019, a new DOL rule raised the cutoff to $35,568, starting in January of 2020.
• The Biden-era rule successfully (albeit temporarily) raised the threshold to $43,888 in July of 2024.
• The beginning of 2025 would have seen another increase to $58,656, and then automatic increases were scheduled to follow every three years thereafter. 
• Most recently in November 2024, U.S. District Court Judge Sean Jordan ruled that the DOL had exceeded its authority, effectively striking down the previously announced increase.

According to Jordan, raising the salary threshold too far created a “de facto ‘salary only’ test for the EAP exemption”. It was also debatable whether the DOL had the authority to put three-year salary increases on autopilot.

Is the 2nd prong of the 2024 overtime rules still a possibility?

There’s a chance that DOL might appeal the decision, even in this lame duck period, but they are unlikely to make headway. The 5th U.S. Circuit Court of Appeals has been described as the “most conservative circuit,” and any unresolved appeals would be withdrawn in January by the new administration. The consensus among pundits is that the rule is dead. 

As the situation now stands, the overtime rule threshold will not be raised again in January of 2025. The increase from July has also been struck down. While it seems unlikely that the legal wrangling over these particular salary thresholds will continue, the next administration might choose to revisit other HR-related rules and legislation from 2024. A more modest increase to the salary threshold could be proposed later in 2025, but that discussion wouldn’t happen until weeks or months after January 1st.

What businesses need to know moving forward

Businesses and HR departments should proceed with reasonable caution regarding overtime rules. Many employers have already made adjustments based on the rules that have been vacated. Some workers have been reclassified and others have had their salaries raised. Employers might be legally able to reverse those recent changes, but you have to consider the impact on staff morale.

READ: Contractors and Exempt Employees: How Worker Classifications Impact Payroll and Taxes

Additionally, several states, like California, Colorado, and New York, already have thresholds higher than the FLSA rule. Many of the workers reclassified in 2024 probably needed to be reclassified anyway, and the changing regulations provided a good reason to clarify those roles. 

It’s a good time to check in with legal counsel, making sure you stay compliant with state and federal regulations. CEOs and HR staff should be on the lookout for several ways the next President will affect businesses. Watch for emerging developments, whether they come from the courts, executive orders, or new leadership in regulatory agencies.

Discover how Netchex can help your stay up-to-date on all federal employment regulations, including overtime rules: