What’s the latest on the FLSA overtime threshold increase ruling?

The Eastern District Court of Texas ruled against the Fair Labor Standards Act (FLSA) overtime salary threshold increase on Friday, November 15, 2024. Under this FLSA overtime ruling, there will be no threshold increases for July 1, 2024 or January 1, 2025. This nationwide ruling impacts all employers and employees.

What would the ruling have meant for employees?

The FLSA ruling issued in April 2024 was set to increase the threshold below which an employee qualifies for overtime and anyone who fell under the salary threshold would have received overtime pay for any hours worked over the federal 40-hour workweek set by the Department of Labor.

In addition, the April 2024 ruling would have increased the highly compensated employee (HCE) threshold from $107,432 to $132,964 annually as of July 1, 2024, with an additional increase on January 1, 2025 to $151,164. The threshold also would have increased every three years along with the overtime increases.

Increasing the threshold would have meant more workers would receive overtime pay and fewer workers would receive an overtime exemption. Alternatively, employers could have chosen to increase base pay (i.e., salary) for employees who would otherwise qualify under the duties test to make them exempt from overtime.

The last threshold increase took place back in 2019. Under the original ruling, the first increase occurred on July 1, 2024, when it increased the minimum overtime salary from $684 weekly or $35,568 annually to $844 weekly or $43,888 annually. The second increase would have occurred on January 1, 2025, increasing the minimum salary to $1,128 weekly or $58,656 annually.
Under the new rule, these thresholds would have continued to increase every three years.

Why did the court strike down the ruling?

After the first increase on July 1, 2024, the state of Texas and private business groups challenged the ruling. If the second increase in January 2025 had continued as planned, 4 million more employees would not have been allowed overtime exemptions based on executive, administration, or professional (“EAP”) duties. The argument was that not all duties require overtime pay and requiring overtime could do more harm than good.

Part of the argument was also that the ruling removed the focus on EAP requirements from the overtime exemption and limited overtime to a salary-only decision, even though they believed work duties played just as much a part in overtime benefits. They  argued against automatic increases rather than carefully analyzing and deciding what increases are necessary based on the economy.
The court decided to strike down the ruling, meaning that there will be no increase to the overtime exemption salary threshold in January 2025 or the following years. The court also reversed the July 2024 increase. However, employers who made adjustments based on the July 2024 increase are not likely to revert their pay changes for current employees this year.

This ruling applied nationwide, not just in Texas, where the lawsuit originated. 

A few states still have overtime salary thresholds that are above the national threshold, including:

• Alaska
• California
• Colorado
• Maine
• New York
• Washington

How does the court’s decision impact employees and employers?

The initial ruling to increase the minimum threshold for overtime allowed more workers to qualify for overtime. It ensured anyone working over 40 hours a week received reasonable compensation for that extra time by legally requiring more employers to pay overtime for workers.

Anyone who did not receive overtime and fell within the threshold could appeal to the DOL for unfair compensation.
Even though there is a set minimum threshold, employers are still able to offer overtime to any employee, regardless of salary, in order to appeal to more workers. However, it is not legally required and is up to the discretion of the employer as well as the EAP test for exemption.

There are several reasons employees may prefer to be exempt from overtime, which makes the rule against the threshold increase appealing. These include:

• A fixed higher salary to compensate for potential long hours rather than overtime pay
• More dependable and predictable salaries
• Better benefits for longer hours
• More flexibility

Employers may also prefer to pay set salaries versus overtime because it can help them budget for the year.

Keeping the federal threshold lower places the power of choice in the individual employer’s hands, allowing them to determine whether to provide overtime for those over the threshold rather than federally mandating it. This can benefit those who meet the exemptions but may also be an area where employers can take advantage of workers by requiring longer hours without fairly compensating them.

Is there a chance the ruling will change in the future?

As The Department of Labor can legally appeal the decision, but there are currently no plans to change this ruling. A new administration will begin on January 20, 2025, and this will bring many changes. President-elect Donald Trump has campaigned for decreasing the overtime tax. However, his campaign did not mention increasing the threshold.

Employers should not expect a threshold increase unless new agendas come to light.

Instead, employers can look into how to use the current threshold to position themselves competitively. Even though you are not legally required to offer overtime above the threshold, you can use it to stand out competitively. If you do not provide overtime, consider what other benefits or higher salaries you might offer to appeal to employees hoping for a higher threshold so they still feel valued.

Being compliant and competitive

First and foremost, you always need to be sure to comply with any federal, state, and local regulations. Beyond that, understanding the overtime practices of your labor market competitors is critical to remaining competitive. Overtime pay can become one of your employees' most appealing benefits. Faced with two jobs opportunities with the same hourly pay — one that is overtime eligible and one that is not — which would you select? 

Mercer can help you understand how to ensure you are compliant and competitive. Give us a call today at 1-855-286-5302  or email us to learn more about our overtime data.

About the Authors

James King is a Principal in Mercer’s Career business in Dallas, TX. He assists clients with talent strategy, workforce management, broad-based compensation, and sales compensation.

LaCinda Glover is a Partner in Mercer’s Career business and specializes in total rewards. LaCinda has been with Mercer for over 18 years. In addition to her consulting role, she is the Career Practice Leader for Kentucky and Tennessee and works in a variety of industries.