A federal court decision on November 15, 2024, halted the implementation of a higher salary threshold for exemptions from overtime. The threshold, which was set to increase to $58,656 annually by Jan. 1, 2025, will remain at the 2019 level of $35,568 per year ($684 per week). The court also invalidated the interim increase many employers implemented on July 1, 2024, which temporarily raised the threshold to $43,880 annually.
Nationwide Impact
The U.S. District Court for the Eastern District of Texas vacated the Biden administration’s overtime rule, finding that the proposed increases were excessive and conflicted with the duties test for white-collar exemptions. This decision aligns with the outcome of the blocked 2016 rule, which sought to increase the threshold to the 40th percentile. Additionally, the court ruled that automatic threshold adjustments every three years violated procedural requirements under the Administrative Procedure Act.
Impact on Employers and Employees
For employees, this ruling may bring potential changes. Those who were reclassified as nonexempt due to the July 1 increase might now be eligible to regain exempt status, provided they still meet the duties test. Regularly reviewing job duties is recommended, especially as automation continues to reshape many roles.
Employers considering reclassification may need to provide prior written notice, which is required in some states. Each organization should evaluate whether reclassification aligns with operational needs and employee relations considerations. In addition, it may be important to utilize the duties test to reassess if exempt classification is possible.
The Role of Duties Tests
The court emphasized that the duties test remains a critical factor in determining exemptions, alongside meeting the salary threshold. The relatively low salary threshold is designed to account for regional differences and should not replace a thorough analysis of job duties.
Overview of Duties Tests for Exemptions
- Executive Exemption: Employees must primarily manage an enterprise or department, regularly direct the work of at least two employees, and have authority over hiring or firing decisions, or their recommendations on such matters must carry significant weight.
- Administrative Exemption: Employees must primarily perform office or nonmanual work related to management or business operations and exercise discretion and independent judgment on matters of significance.
- Professional Exemption: Employees must perform work requiring advanced knowledge in a specialized field, typically acquired through prolonged intellectual instruction, or work in highly specialized fields such as teaching or computer analytics.
For all organizations, understanding and properly applying these duties tests is important for compliance and ensuring alignment between employee roles and organizational goals. Understanding the duties test will prepare you for any future changes in the overtime regulations.
Bottom line for now: The minimum exempt salary level will remain at the 2019 level of $35,568 per year ($684 per week).
If you have any questions, please don’t hesitate to contact HR Services!
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
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