Wage and Hour

The Overtime Threshold Dropped Back to $35,568. The Misclassification It Was Hiding Did Not Go Away.

Published by Faulkner HR Solutions | Employment Law and HR Compliance

In 2024, a lot of employers responded to the proposed overtime rule by raising salaries. It was the fast fix, and for most organizations it was the only fix available on the timeline. Almost nobody used the occasion to re-examine whether those employees passed the duties test in the first place, because the salary bump made the question moot. It is not moot anymore. The Department of Labor formally rescinded the 2024 rule in May, the floor is back to $684 a week, and the classification problem that a raise papered over is sitting exactly where it was.

What changed, briefly

The operative federal threshold is $684 a week, or $35,568 a year. For the highly compensated employee exemption it is $107,432, which also requires at least $684 a week paid on a salary or fee basis. Those are the 2019 numbers.

The 2024 rule would have taken the threshold to $844 a week and then $1,128. The Eastern District of Texas vacated it nationwide in November 2024, the Department stopped defending it, the Fifth Circuit dismissed the last appeal on May 5, 2026, and DOL published a technical amendment restoring the 2019 regulations effective May 15. This is settled, not pending, which is worth stating because a fair amount of surviving commentary still describes it as unresolved.

That is the commodity half of this story and you can read it in fifty places. The half worth your time is what the reversal exposes.

A salary fix for a duties problem

Exemption has three requirements, not one. The employee has to be paid on a salary basis. That salary has to clear the threshold. And the job has to actually fit one of the exemption categories, which are executive, administrative, professional, outside sales, and certain computer roles.

In 2024, the second requirement was the one with a deadline attached, so it got the attention. An organization looking at a list of exempt employees below the coming threshold had two honest options: raise them, or reclassify them as non-exempt and start paying overtime. Raising them was cheaper, faster, and did not require anyone to have a conversation with a supervisor about what their team actually does all day. So that is what most employers did.

The trouble is that the duties test was always the harder of the two, and the raise did not touch it. A coordinator who executes established procedures very well does not exercise discretion and independent judgment on matters of significance, which is what the administrative exemption requires, and a $6,000 raise did not change that. A working supervisor who spends four days a week doing the same production work as the crew does not meet the executive exemption either. Those employees were misclassified in 2023, they were misclassified after the raise, and they are misclassified now. The only thing that changed is that the salary number stopped providing cover for not looking.

What your file would prove

Here is the question we ask organizations during a diagnostic, and it is the one that matters more than the threshold: if an employee sued you tomorrow, what would your files prove?

For most Texas employers, the honest answer on classification is that the file would prove a title and a salary. It would not prove that anyone ever analyzed the duties, applied a standard, and recorded a reason. Documentation is not paperwork. It is proof of how the organization reasoned, and a classification decision with no recorded reasoning is not a decision. It is an assumption that has been sitting in payroll long enough to look official.

This is why the misclassification cases that go badly tend to go badly all at once. The exposure compounds through unpaid overtime, liquidated damages, and a lookback of two to three years, and it rarely stops at one employee, because whatever reasoning produced the call for a shift lead produced the same call for the other four. Published defense cost estimates for a single employment claim run $75,000 to $125,000 before any settlement and regardless of fault. In fiscal year 2025 the Department of Labor recovered $259 million in back wages across roughly 177,000 employees, the highest figure since 2019.

Texas employers have a particular reason to care. Texas accounts for roughly ten percent of all EEOC charges nationally, the largest share of any state. Whatever the enforcement climate is doing at the federal level, the volume of claims originating here is not a national average.

We already raised salaries. Can we take it back?

Legally, generally yes, prospectively. There is no federal prohibition on reducing a go-forward salary provided you do it prospectively, stay above applicable minimums, are not acting for a discriminatory or retaliatory reason, and are not bound by a contract or offer letter that fixed the number. Texas has no state overtime threshold above the federal one and nothing preventing a prospective reduction with notice.

Practically, look at who you would be cutting. They are the people you flagged in 2024 as borderline exempt, which in most organizations means shift leads and junior managers. Those are the hardest roles to backfill right now, replacement cost runs 90 to 200 percent of salary once recruiting, training, and lost output are counted, and the savings are usually a few thousand dollars a head. The arithmetic stops working almost immediately.

There is also a second-order cost that does not appear in the model. Reversing a raise teaches a group of frontline supervisors that their compensation is a function of what the government is currently forcing you to do, and that lesson does not stay contained to the people who took the cut. Culture is not a mood that descends on a building. It is the sum of what leadership has repeatedly rewarded and quietly tolerated, and a rescinded raise is a very legible entry in that ledger.

If you do it anyway, do it in writing, with real notice, explained face to face rather than through a payroll notification. The more common landing spot is to leave the salary alone and treat the 2024 increase as a raise that happened for a regulatory reason and got kept for a retention reason. That is a defensible use of a few thousand dollars.

Two things that did not change

Non-exempt employees still get time and a half over forty hours in a workweek. The threshold governs who is eligible to be exempted, not whether overtime exists. Lowering the bar for exemption did not lower anyone's overtime rights.

And state law is frequently stricter. California, New York, Washington, and Colorado all hold exempt thresholds well above the federal floor. A number of Texas organizations picked up remote employees in those states after 2020 without ever thinking of themselves as multistate employers. The federal number is not your number for those people. Check every state where an employee physically works, not the state where your office sits.

What to pull, and what to ask

Pull your exempt list and find everyone paid between $35,568 and $58,656. That band is where the uncertainty of 2024 deposited people, and it is where classification is most likely to be wrong.

Then, for each of them, ask the supervisor a question rather than reading the job description. Ask what the person actually spent last week doing, in hours. The job description is a document about intentions. The week is evidence, and evidence is what an investigator will be working from. Where the two disagree, the week wins, and you would rather find that out now than during a Wage and Hour interview.

If the duties do not hold up, the salary number will not save you. It never did. That is the whole lesson of the last two years: a threshold moving up made employers spend money, a threshold moving back down made them stop thinking about it, and neither event had anything to do with whether the classification was right. If you want that answered systematically rather than one uncomfortable case at a time, that is what a compensation and classification review inside an HR audit is for.