This past Friday, employers scored a victory when a Texas federal judge struck down the Department of Labor’s (DOL) rule which increased the salary levels for the Fair Labor Standards Act’s (FLSA) executive, administrative, professional, and highly compensated employee overtime exemptions. The court’s ruling vacated the DOL’s entire rule and blocks its application nationwide.
Newly Stricken DOL Rule
The FLSA generally requires employers to pay employees at least minimum wage as well as overtime for non-exempt employees working more than 40 hours per week. However, the FLSA exempts from overtime employees who earn at or above a set salary and perform certain duties as defined by regulations. Among the FLSA’s overtime exemptions are ones for executive, administrative, professional, and highly compensated employees. The DOL sets the salary thresholds for these four exemptions through its rulemaking authority.
The DOL’s rule, which took effect on July 1, 2024, increased the salary thresholds for the executive, administrative, professional, and highly compensated employee overtime exemptions. The rule increased the salary thresholds as follows:
- Executive, Administrative, and Professional Employees: the salary threshold increased from $35,568 to $43,888 starting on July 1, 2024, and was scheduled to increase to $58,656 starting on January 1, 2025.
- Highly Compensated Employee: the salary threshold increased from $107,432 to $132,964 on July 1, 2024, and was scheduled to increase to $151,164 starting on January 1, 2025.
The rule also automatically increased these salary threshold every three years, beginning on July 1, 2027.
Takeaways for Employers
The DOL is not expected to appeal the federal court’s ruling considering the upcoming change in presidential administrations. Therefore, the salary thresholds will revert back to their previous levels. The current salary thresholds are:
- Executive, Administrative, and Professional Employees: $35,568
- Highly Compensated Employee: $107,432
The rule represented a major expansion in employer’s overtime obligations. By increasing these thresholds, the DOL imposed on employers a costly dilemma: either provide raises for executive, administrative, professional, and highly compensated employees so the employees could continue to qualify for overtime exemption, or pay these employees overtime when they work more than 40 hours per week. The court’s ruling relieves businesses from potentially diverting more revenue towards labor costs.
Employers who raised their employees’ salaries in order to comply with the DOL’s rule now face a difficult choice on whether to keep their employees at their newly raised salaries or reduce them, which itself could create other legal and human resource issues.
