Labor Department Restores Lower Overtime Salary Threshold After Court Vacatur
The Labor Department has restored the lower federal salary thresholds that governed white collar overtime exemptions before its 2024 overtime rule took effect, turning last year's court vacatur into an immediate Code of Federal Regulations correction for employers.
In a final rule published May 15, the department's Wage and Hour Division amended 29 CFR part 541 and said it was removing the regulatory text from the now vacated 2024 rule. In its place, the agency republished the text that existed before the 2024 rule's effective date.
The practical result is a return to the 2019 salary levels for the executive, administrative and professional exemptions under the Fair Labor Standards Act. The standard salary level is again $684 per week, equal to $35,568 for a full year worker. The highly compensated employee threshold is again $107,432 per year.
The department described the move as implementation of court judgments, not a new discretionary policy choice. The Federal Register notice says the operative regulations are the version in place on June 30, 2024, before the 2024 final rule began changing the salary thresholds.
"Put simply, this action is a technical correction accounting for changes in the law that have already occurred." - U.S. Department of Labor, Wage and Hour Division
For businesses, the change matters because salary level is one gate in the white collar exemption test. A lower threshold increases the group of salaried employees who can potentially remain exempt if they also satisfy the salary basis and duties tests. A higher threshold would have made more salaried workers overtime eligible unless employers raised pay, changed schedules or reclassified jobs.
What The Rule Restores
The final rule restores the regulatory baseline that existed before the 2024 overtime rule. That earlier framework requires exempt executive, administrative and professional employees to be paid on a salary basis, meet applicable duties tests and earn at least $684 per week. The special highly compensated employee test returns to $107,432 in total annual compensation.
The 2024 rule would have moved the salary level in two steps. First, it raised the standard salary threshold from $684 per week to $844 per week starting July 1, 2024. Second, it would have raised the threshold to $1,128 per week starting January 1, 2025. It also added a mechanism for automatic updates every three years.
Those changes are no longer in the CFR after the court rulings and the May 15 correction. The department's new notice says it is removing the vacated text and restoring the earlier provisions so that the public can see the operative law in the published regulations.
That distinction is important for payroll departments and employment counsel. The notice does not create a fresh increase or decrease through notice and comment. It aligns the regulatory text with judgments that already vacated the 2024 rule.
"Through this technical amendment, the Department is removing from the Code of Federal Regulations (CFR) the regulatory text from the now-vacated 2024 rule and republishing in its place the regulatory text as it existed prior to the effective date of that rule." - U.S. Department of Labor, Wage and Hour Division
The department also said delay would risk confusion about the state of the law. That is the immediate compliance reason for the rule: the agency is trying to make the published CFR match what courts have already required.
The Court Order Behind The Change
The legal turning point came from the Eastern District of Texas. In litigation brought by the State of Texas and business plaintiffs, the court vacated the 2024 rule after concluding that the department exceeded its authority by using salary levels in a way that displaced the statutory focus on duties.
The court order described the 2024 rule as changing exemption status for millions of workers through salary threshold increases. It noted that the rule first lifted the minimum salary level from $684 to $844 per week, then was scheduled to lift it again to $1,128 per week at the start of 2025.
"The 2024 Rule raises the salary level from $844 per week to $1,128 per week starting on January 1, 2025. The Department estimates that this change will render about three million additional employees nonexempt who were previously exempt, with no change in their duties." - Eastern District of Texas memorandum opinion and order
That quoted estimate is the central scale marker. The case was not only about technical regulatory wording. It involved whether roughly three million additional employees would become nonexempt at the January 2025 step even if their job duties did not change.
The department's May 15 notice says it is implementing court judgments that vacated the 2024 final rule. The brief also notes that Fifth Circuit appeal dismissals in early May cleared the way for this implementation step. Today's action is therefore best read as an administrative cleanup with immediate compliance consequences.
Economic Implications
The economics run through classification mechanics, not sentiment. Under the FLSA, many nonexempt employees must receive overtime pay at one and one half times their regular rate for hours worked over 40 in a workweek. The white collar exemptions remove that overtime requirement only when the employee satisfies the regulatory tests.
A salary threshold changes employer cost options. At $684 per week, a full year salary of $35,568 can satisfy the salary level component. At $1,128 per week, the annual equivalent would be $58,656. That is a difference of $23,088 per year for a worker whose duties and salary basis otherwise allow an exemption.
For an employer with 100 salaried roles sitting between those two annualized numbers, the threshold gap can be large. Raising every affected worker to $58,656 would cost up to $2.31 million per year before payroll taxes and benefit effects if all 100 workers were at the old floor. Reclassifying them instead would avoid that fixed salary increase but would create overtime exposure whenever hours exceed 40 in a week.
The court order's cited estimate of about three million additional nonexempt employees shows the national scale of the January 2025 step that was vacated. Even small per worker scheduling changes can compound across that population. If a newly nonexempt employee worked five overtime hours in a week, the marginal cost would depend on the regular hourly rate and the overtime premium. Employers would also face timekeeping, manager training and payroll system changes for roles previously treated as exempt.
The restored $107,432 highly compensated employee threshold has a similar planning effect for higher paid workers. Lowering the operative threshold increases the range of employees who may be evaluated under the highly compensated employee test, again subject to the underlying requirements. It does not automatically make every worker exempt. It changes which compensation packages clear the salary gate.
The effect on workers is the mirror image. Higher thresholds tend to expand overtime eligibility unless employers raise salaries above the new level. Lower thresholds reduce the number of employees who become overtime eligible solely because their pay falls below a salary cutoff. Some workers may therefore remain salaried exempt even when they would have become nonexempt under the vacated January 2025 threshold.
The rule also affects uncertainty costs. Businesses that changed classifications after the 2024 rule, paused changes during litigation or budgeted for the January 2025 step now have a federal regulatory text that matches the vacatur. That reduces ambiguity in the CFR, but it does not remove wage and hour risk. Employers still have to apply the duties tests, the salary basis test, state law requirements and any future federal rulemaking.
What Employers Should Not Assume
The restored threshold is not a blanket exemption. The Labor Department's own guidance on the executive, administrative, professional, computer and outside sales exemptions explains that the exemptions depend on more than salary level. Duties still matter, and the salary basis requirement still matters for most affected categories.
That means the May 15 rule does not give employers a safe harbor for misclassified employees. A worker paid above $684 per week can still be nonexempt if the job duties do not fit the executive, administrative or professional tests. Likewise, a worker paid below the threshold generally cannot qualify for those salary based exemptions even if the title sounds managerial.
The department also says the technical amendment does not prevent future notice and comment rulemaking. That leaves a policy path open. A future administration or the same department could propose a new salary level through the ordinary rulemaking process, and any new rule would likely invite close attention from employers, workers and courts.
The immediate compliance posture is narrower. Federal regulations now show the lower 2019 thresholds because courts vacated the 2024 rule. Employers that treated the higher levels as operative should revisit their classifications, but they should do so through the full exemption analysis rather than treating salary alone as the answer.
The Bottom Line
The May 15 final rule returns the federal white collar overtime salary thresholds to $684 per week for the standard test and $107,432 per year for highly compensated employees. The Labor Department frames the action as a ministerial correction after court vacatur, while the court record shows why the stakes were large: the blocked January 2025 threshold would have made about three million additional employees nonexempt, according to the department estimate cited by the court.
For businesses, the restored text lowers the federal salary gate for potential exemptions and clarifies what appears in the CFR. For workers, it narrows the group that becomes overtime eligible by salary threshold alone. The next major question is not what today's correction says, but whether the department later tries a new overtime salary rule through full notice and comment.
