The 2024 FLSA Overtime Rule: Final Rule Implementation Guide

The Final Rule

The Department of Labor issued its final rule updating the salary thresholds for the FLSA's white-collar overtime exemptions, with implementation in two phases. The first increase took effect July 1, 2024, raising the standard salary level to $43,888 per year ($844 per week). The second increase was scheduled for January 1, 2025, raising it to $58,656 per year ($1,128 per week). The highly compensated employee (HCE) threshold also increased in both phases.

However, in November 2024 a federal court in Texas vacated the rule nationwide. This legal development does not mean employers should ignore the issues the rule raised. The underlying policy direction remains, and many states have their own higher thresholds. Here is what employers should know.

What the Court Decision Means

The court found that the DOL exceeded its authority by setting salary thresholds so high that they effectively replaced the duties test with a salary-only test. The vacatur returned the salary threshold to the pre-rule level of $35,568 per year ($684 per week).

Employers who had already raised salaries to comply with the July 2024 threshold are not required to reduce them, and doing so would create morale and retention problems. Those who were planning increases for the January 2025 phase may reassess, but should consider state requirements and competitiveness.

Why This Still Matters

State thresholds may be higher. Several states, including California, New York, Washington, and Colorado, maintain salary thresholds above the federal level. Employers must comply with the higher applicable threshold.

Future rulemaking is likely. Every recent administration has attempted to update the salary threshold. Future rules may use a more modest approach that courts are more likely to uphold. Employers should remain prepared for increases.

Classification problems persist. The attention on salary thresholds should not distract from the duties test. Many employers have employees classified as exempt who do not meet the duties requirements regardless of salary level. An audit focused solely on salary misses half the analysis.

Action Steps

1. Review all exempt classifications. Use this moment to audit not just salary levels but also duties test compliance for every exempt position. Confirm that each employee's primary duty meets the specific criteria for the executive, administrative, professional, computer employee, or outside sales exemption.

2. Know your state requirements. Determine the salary threshold in every state where you have exempt employees and ensure compliance with the highest applicable standard.

3. Maintain salary adjustments already made. If you raised salaries in response to the July 2024 threshold, keep them. Reducing salaries will damage trust and may trigger constructive discharge claims.

4. Keep your reclassification plans ready. The analysis you did to prepare for the rule is not wasted. When the next rule is proposed, and it will be, you will be ahead of employers who did not prepare.

5. Fix timekeeping gaps. If the preparation process revealed that you lack adequate timekeeping for some positions, fix that now. Accurate time records protect you regardless of classification status.

6. Communicate with employees. If employees were told their classifications would change and those changes were reversed, communicate clearly about what happened and why. Uncertainty erodes trust more than bad news.

The Bigger Picture

The overtime exemption analysis has always required meeting both the salary test and the duties test. Many employers focus on salary because it is easier to measure, but the duties test is where most litigation risk lies. A well-compensated employee who does not actually perform exempt duties is not exempt, regardless of what the salary threshold is.

Use the current period of regulatory uncertainty as an opportunity to get your classifications right. When the rules change again, as they will, you will be ready.