Earlier this month, a court in the Eastern District of Texas tossed out the Department of Labor’s (“DOL”) final rule raising the salary thresholds for employees characterized as exempt from overtime under the Fair Labor Standards Act (“FLSA”). This decision means that employers do not need to increase exempt employees’ salaries in January 2025 in order to maintain their status. It also rolls back the July 1, 2024, increase that is already in effect.
What did the Final rule provide?
The rule, published in April 2024, introduced a two-phase approach to raising the minimum salary threshold under the FLSA’s overtime regulations. The first phase, which took effect on July 1, 2024, increased the minimum salary for exempt employees to $43,888 per year (or $844 per week). The second phase, originally scheduled for January 1, 2025, would have raised the threshold further to $58,656 per year (or $1,128 per week). In addition to these increases, it included provisions for automatic updates to the minimum salary level every three years.
What Did the District Court Do?
Earlier this year, the 5th Circuit affirmed the DOL’s final rule, but did so with the caveat that the DOL cannot enact rules “that replace or swallow” part of the test that determines whether an employee is considered exempt. The Texas District Court determined that the DOL’s final rule made the salary threshold so high that it made the duties portion of the exemption irrelevant. Importantly, the Texas court held that this decision applies to the entire country.
What are the salary minimums now?
This decision resets the salary test back to 2019 levels. Employees who meet the duties test by working in an administrative, executive, or professional capacity and make at least $35,568 annually ($684 per week) are now exempt from the FLSA. This means they do not have to have to track their hours and do not need to be paid overtime.
What does this mean for employers?
This means that employers will no longer have to comply with either the July 2024 increase or the upcoming January 2025 increase. If an employer has not communicated the January 2025 salary increase to their employees, then they do not have to move forward with the increase. If an employee was transitioned to non-exempt status in July because they no longer met the salary threshold, then an employer can shift them back to an exempt employee so long as they meet the duties test and make at least $35,568 per year.
Here at Gravel & Shea, we will closely monitor all future appeals to this decision and will provide more information as it becomes available. We are also able to advise and counsel regarding employee classifications and how employers should move forward at this time.
