The U.S. Department of Labor’s (DOL’s) Wage and Hour Division announced it will rescind the Biden-era overtime rule, more than a year after federal courts vacated the rule (the “2024 Rule”). The recission formally ends the DOL’s effort to increase the salary threshold for overtime exemption eligibility under the Fair Labor Standards Act (FLSA).
What the 2024 Overtime Rule Required
The 2024 Rule increased the minimum salary required for certain employees to qualify as exempt from overtime pay from $684 per week ($35,568 annually, under the 2019 rule) to $844 per week ($43,888 annually) beginning in July 2024. The rule also provided for a second increase to $1,128 per week ($58,656 annually), effective January 1, 2025, with automatic updates scheduled every three years thereafter.
The rule primarily affected employees classified under the executive, administrative, and professional (EAP) exemptions. Employers often rely on these exemptions to classify salaried employees as exempt from overtime requirements.
Understanding Overtime Exemptions Under the FLSA
Under the FLSA, most employees must receive overtime pay at one-and-one-half times their regular rate of pay for hours worked over 40 in a workweek. Employees who satisfy certain exemption requirements, however, are not entitled to overtime compensation.
To qualify for an exemption, employees generally must satisfy three tests:
- Salary Basis Test: The employee receives a predetermined salary that is not reduced based on work quality or quantity;
- Salary Level Test: The employee’s salary meets or exceeds the minimum threshold established by regulation; and
- Duties Test: The employee’s primary job duties involve exempt executive, administrative, or professional functions.
Importantly, satisfying the salary threshold alone does not make an employee exempt. Likewise, employees must meet both the salary requirements and duties requirements to qualify for exemption status.
Why Federal Courts Struck Down the Rule
The 2024 Rule faced immediate legal challenges, including State of Texas v. U.S. Department of Labor and Plano Chamber of Commerce v. U.S. Department of Labor. In those cases, federal district courts in Texas determined the DOL exceeded its statutory authority by establishing salary thresholds that effectively displaced the duties-based analysis required under the FLSA.
The courts concluded Congress intended overtime exemptions to turn principally on an employee’s duties and not their compensation level alone. According to the decisions, the increased thresholds risked excluding employees from exempt status based solely on salary, even where their job responsibilities otherwise satisfied exemption criteria.
The courts ultimately vacated the 2024 Rule. Earlier this month, after the DOL withdrew its appeals, the Fifth Circuit dismissed the pending cases, leaving the lower court rulings as final judgements. The DOL’s recission confirms the 2024 Rule is dead, at least for now.
Employer Considerations Beyond Legal Compliance
Although the rescission restores the prior federal overtime framework, employers should proceed thoughtfully before making compensation changes in response. Just because employers can lower these base salaries doesn’t mean it is a good idea. Compensation changes may carry consequences beyond legal compliance, including:
- Effects on employee morale and retention;
- Recruitment and competitiveness concerns;
- Internal pay equity considerations; and
- Administrative challenges associated with reclassification and overtime tracking.
Employers should evaluate both legal requirements and broader workforce implications before implementing compensation-related changes.
Conclusion
The formal rescission of the Biden-era overtime rule restores the prior overtime exemption framework, but classification decisions remain complex. Employers should continue to analyze salary levels, employee duties, and organizational impacts when evaluating exempt status or compensation changes.
Brody and Associates regularly advises management on wage and hour compliance, including employee classification, overtime requirements, pay practices, and evolving federal, state, and local wage and hour laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or (203) 454-0560.
