🚨 March 2025 Update: This is an update to our October 2024 guide, "The New 2024 Overtime Rule: A Complete Guide for Service Businesses," with critical developments affecting overtime regulations.
Brief History of the 2024 Overtime Rule
On April 23, 2024, the Department of Labor (DOL) issued its final overtime rule after reviewing
33,000+ public comments. This was the Biden administration’s effort to expand overtime protections, following a similar attempt under Obama in 2016, which was also blocked.
The rule was designed to be implemented in two phases to give employers time to adjust:
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Phase 1 went into effect on July 1, 2024, with an initial increase of the salary threshold from $35,568 to $43,888
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Phase 2 was scheduled for January 1, 2025, with a more substantial increase to $58,656
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Future: Automatic updates every three years starting in 2027.
The 2024 Overtime Rule’s Future Remains Uncertain After Court Ruling
If your business had been preparing for the January 1, 2025 increase in overtime salary thresholds, it’s important to know that those changes are no longer in effect.
On November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the rule, effectively reversing these changes.
As a result:
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The overtime exemption threshold remains at $35,568 per year ($684 per week)
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The Highly Compensated Employee (HCE) exemption remains at $107,432 per year
Why Was the Rule Blocked?
According to the court ruling, while the DOL has the authority to define overtime exemptions, the 2024 rule overstepped its bounds by:
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Making salary the primary factor for overtime exemption instead of focusing on job duties
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Ignoring the Fair Labor Standards Act (FLSA) requirements, which emphasize an employee’s job responsibilities—not just their salary
Judge Sean D. Jordan stated that the rule “effectively eliminates” other considerations required under the FLSA, creating a salary-only test that goes beyond what the law allows.
What’s Next? The Legal Battle Continues
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The Biden Administration (November 2024) and the Trump Administration (February 2025) both appealed the court decision.
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Both appeals are now being reviewed by the Fifth Circuit Court of Appeals.
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While the Trump administration is defending the DOL’s authority to set salary thresholds, many expect it will revise the rule to set a lower threshold in line with previous policies.
What This Means for Your Business
1. Ensure Compliance with Current Salary Threshold
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Businesses must adhere to the $35,568 per year ($684 per week) threshold for overtime exemptions
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Review employee classifications to ensure they meet both salary and duties requirements
2. Consider Options for Changes You've Already Made
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If you increased salaries: You may want to evaluate whether to maintain these increases or adjust them, considering potential impacts on employee morale
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If you reclassified employees: You may want to review classification status based on current requirements
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If you communicated future changes: Update employees about the reversal of planned January 2025 changes
3. Be Aware of Additional Considerations
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Check state-specific laws: If you operate in California, New York, Washington, or other states with higher thresholds, you must continue complying with those regulations
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Stay informed: Monitor the Fifth Circuit Court of Appeals review of the case
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Seek guidance: Consult with legal counsel if you operate in multiple states with varying wage laws
What Is the Current Overtime Salary Threshold for Exempt Employees?
Because the court struck down the 2024 rule, the phased salary increases described above never took effect. As explained earlier, the overtime exemption threshold remains at $35,568 per year ($684 per week), and the Highly Compensated Employee (HCE) exemption remains at $107,432 per year. Employers should use these figures, not the higher thresholds the DOL had proposed, when reviewing which employees currently qualify for the overtime exemption.
Why Did a Federal Court Block the 2024 Overtime Rule?
As covered above, the court found that the DOL overstepped its authority by making salary the primary factor for overtime exemption instead of focusing on an employee's actual job duties. That approach conflicted with the Fair Labor Standards Act (FLSA), which emphasizes job responsibilities rather than salary alone. Judge Sean D. Jordan's ruling described the rule as creating a salary-only test that went beyond what the FLSA allows, effectively eliminating the other considerations the law requires.
Is the Legal Fight Over the 2024 Overtime Rule Finished?
No - as described above, both the Biden Administration and the Trump Administration appealed the court's decision, and both appeals are now in front of the Fifth Circuit Court of Appeals. The Trump administration is defending the DOL's authority to set salary thresholds in general, even while many expect it to eventually propose a new rule with a lower threshold than the blocked 2024 version. Until the Fifth Circuit rules, the current $35,568 threshold stays in place.
Do State Overtime Laws Still Apply If the Federal Rule Was Blocked?
Yes. As noted above, if you operate in California, New York, Washington, or another state with its own higher salary threshold, you must keep complying with that state's rule regardless of what happens at the federal level. This is one of the additional considerations service businesses need to watch, alongside monitoring the Fifth Circuit case and consulting legal counsel if you operate across multiple states with different wage laws. Our California compliance resources can help if that's one of the states where you operate.
What Should Service Businesses Do Right Now?
Based on the guidance above, service businesses should focus on three things while the legal situation remains unsettled:
- Confirm current employee classifications meet both the $35,568 salary threshold and the FLSA's job-duties requirements.
- Decide whether to keep or adjust any salary increases, reclassifications, or employee communications you already made in anticipation of the January 2025 changes.
- Keep watching state-specific rules and the Fifth Circuit appeal, and consult legal counsel if you operate in multiple states.
Solid HR and payroll records make each of these steps easier, since accurate classification and pay history are exactly what you - or your attorney - will need if a question comes up during the appeal.
Final Thoughts
The blocking of the 2024 overtime rule creates uncertainty for all employers subject to FLSA regulations. While the $35,568 salary threshold remains in effect, businesses should stay vigilant for potential changes as the court case moves forward and the Trump administration considers a new rule.
We'll continue tracking updates and sharing information about these regulatory changes.
Frequently Asked Questions
What is the current overtime salary threshold now that the 2024 rule was overturned?
As explained above, the overtime exemption threshold remains at $35,568 per year ($684 per week), and the Highly Compensated Employee (HCE) exemption remains at $107,432 per year. The higher, phased-in thresholds the 2024 rule would have introduced never took effect because the rule was struck down before they applied.
Why was the 2024 overtime rule struck down?
A federal court found that the Department of Labor overstepped its authority by making salary the primary factor for overtime exemption instead of focusing on job duties, which conflicts with what the Fair Labor Standards Act (FLSA) requires. As covered above, the judge described the rule as creating a salary-only test that went beyond what the FLSA allows.
Is the fight over the 2024 overtime rule finished?
Not yet. As noted above, both the Biden and Trump Administrations appealed the court's decision, and the Fifth Circuit Court of Appeals is now reviewing both appeals. Until that review concludes, the current $35,568 threshold stays in effect, though many expect the Trump administration to eventually propose a new rule with a lower threshold.
Do state overtime laws still apply after the federal rule was blocked?
Yes. As explained above, employers in California, New York, Washington, or any other state with its own higher salary threshold must keep following that state's requirements, regardless of what happens with the federal rule. Our California compliance resources cover what that looks like if you operate there.
What should I do if I already raised salaries or reclassified employees in anticipation of the rule?
Revisit those decisions with the current requirements in mind. As covered above, you'll want to decide whether to keep or adjust any salary increases you made, review the classification status of any employees you reclassified, and update your team if you had communicated the now-reversed January 2025 changes to them.
Where can I get help managing overtime compliance and payroll?
Good HR and payroll tools make it easier to track classifications, pay rates, and documentation - exactly what you need on hand if a question comes up while the Fifth Circuit case is pending. For state-specific questions or multi-state compliance, the post recommends consulting legal counsel directly.