On November 15, 2024, a significant decision from the U.S. District Court for the Eastern District of Texas reshaped the landscape of overtime exemptions for white-collar workers. The court vacated the U.S. Department of Labor’s (DOL) new overtime rule, which increased the salary threshold for white-collar exemptions bank in July 2024, with a second planned for January 2025. This ruling, which applies nationwide, brings the overtime exempt threshold back to those in 2019, sparing many employers from the anticipated rise in salary thresholds for white-collar employees.
The Overtime Exempt Threshold and the Impact of the Court’s Decision
Under the Biden administration’s proposed rule, the overtime exempt threshold for executive, administrative, and professional (EAP) employees, based on the duties test, increased from $35,568 annually to $43,880 on July 1, 2024. A second increase was proposed to raise it again to $58,656 annually on January 1, 2025. However, the court’s ruling effectively strikes down both increases, reinstating the threshold to $35,568 per year, or $684 per week, as it stood before July 1, 2024.
This decision means employers do not have to adjust their payroll to comply with the higher thresholds. The decision also nullified the provision that would have automatically raised the salary threshold every three years, a controversial aspect of the rule.
Reclassification and Employee Relations
One immediate question for employers is whether to reverse any salary increases with the reversal of the 2024 changes. While it may be tempting to revert salaries for some employees to avoid paying higher wages, lowering salaries could lead to dissatisfaction or potential turnover.
On the other hand, employees who were reclassified as nonexempt due to the July 2024 increase may now be reclassified back to exempt, provided they still meet the duties test. Employers should periodically review job functions, especially as automation increases, to ensure that employees meet the necessary exempt criteria.
The Importance of the Duties Test
While the overtime exempt threshold plays a role in determining exemption status, the court’s ruling reinforces that the duties test remains the primary determinant for white-collar exemptions. Employers must ensure that employees meet specific duties to qualify for exemption status:
- Executive Exemption: Employees must have a primary duty of managing the enterprise or a department and regularly direct the work of at least two other employees. They must also have the authority to hire or fire employees, or their suggestions must carry significant weight.
- Administrative Exemption: Employees must perform office or nonmanual work related to the management or business operations of the employer, with a primary duty involving discretion and independent judgment.
- Professional Exemption: Employees must work in a field requiring specialized knowledge, such as in the sciences, teaching, or computer analytics, typically requiring advanced education.
State-Specific Overtime Exempt Thresholds
In addition to the federal court ruling, states have overtime exemption thresholds, which may differ from the federal minimums. These thresholds are often based on the state’s minimum wage laws. Below are some states with specific overtime exemption thresholds for 2025:
- Alaska: Starting January 1, 2025, the overtime exempt threshold will increase to $49,545.60 annually ($952.80 per week), which is two times the minimum wage.
- California: The overtime exempt threshold will rise to $68,640 annually ($1,320 per week) on January 1, 2025, due to the state’s higher minimum wage of $16.50/hour. The threshold is two times the minimum wage.
- Colorado: The overtime exempt threshold will increase to $56,485 annually ($1,086.25 weekly) in 2025, adjusted annually for inflation.
- Maine: Starting January 1, 2025, the overtime exempt threshold will increase to $43,951 annually ($845.21 per week).
- New York: The overtime exempt threshold for areas outside New York City, Nassau, Suffolk, and Westchester counties will rise to $60,405.80 annually ($1,161.65 weekly), while in those counties, it will be $64,350 annually ($1,237.50 weekly).
- Washington: Small employers with less than 50 employees will have an overtime exempt threshold of $69,305 annually ($1,332.80 weekly) or two times the minimum wage of $16.66/hour, while larger employers will have a higher threshold of $77,986.80 annually ($1,499.40 weekly) or 2.25 times the minimum wage.
Looking Ahead: What’s Next?
While the court’s decision temporarily halts the proposed overtime rule, the future remains uncertain. The Biden administration may appeal the ruling, and any appeal will likely go to the 5th U.S. Circuit Court of Appeals. Additionally, with the impending shift to the Trump administration, it could revisit or even repeal parts of the overtime exempt threshold, as it did with previous regulations during its tenure.
In the meantime, employers must continue to evaluate their payroll practices and employee classifications in light of the current overtime exempt thresholds and duties tests while monitoring future regulatory changes.
How We Can Help
Wages in Attendance on Demand can be updated to any effective date. These changes can be entered before your chosen date and start automatically. This process is especially good when preparing for a mass change in minimum wage, like a state’s or city’s annual minimum wage change. This process is done by going to the Employee’s Personal Information tab and then Rate of Pay. Hit the Change Rate and/or Pay Type button and enter the new rate with the effective date.
For more information on how we can help you through this transition, please contact Time Equipment Company at sales@timeequipment.com or 800-997-8463.
*This document simplifies complex Acts as Time Equipment Company understands them. It is not to be taken as legal advice. The regulations for this program are changing. For further information about the Overtime Exempt Threshold, please contact the U.S. Department of Labor and your state labor department.
