Starting a new year is a good opportunity for employers to review compensation structures to ensure sure they are paying their employees enough to meet the salary thresholds necessary for an employee to maintain their exempt status. For certain types of employees to be exempt from the overtime requirements of both federal and state law, they must earn a minimum weekly salary (in addition to other requirements). The thresholds can be different, and higher, under state law (i.e., New York). To complicate the matter further, the thresholds under federal law continue to be challenged.
Employers should act now and review federal and state requirements to help avoid penalties later.
Federal Law Exempt Salary Threshold Status
In July 2024, a final rule of the U.S. Department of Labor (DOL) went into effect, raising the minimum salary threshold for an employee to be exempt under the Executive, Administrative, Professional (EAP) and Highly Compensated Employees (HCE) exemptions. The threshold was raised from $684/week ($35,568 per year) to $844/week ($43,888 per year). The annual threshold for the HCE exemption also increased from $107,432 to $132,964. Additional increases to the weekly and yearly salary thresholds were scheduled on January 1, 2025, and in the years thereafter. The duties test for the EAP exemptions, which must be met in addition to the salary threshold, are unchanged by the final rule.
However, on November 15, 2024, the United States District Court for the Eastern District of Texas struck down the final rule, reverting the salary thresholds to the levels before the 2024 rule. The court concluded that the DOL had exceeded its authority as delegated by Congress. Just a couple weeks later, on November 26, 2024, the DOL filed a notice of appeal challenging the Texas District Court’s decision, which at least as of now, remains pending.
Therefore, the salary threshold requirement under federal law remains at $684/week (and the HCE threshold remains $107,432).
Don’t Forget to Check State Law
Some states, like New York, require a higher salary threshold for their exemptions.
In New York, on January 1, 2025, the minimum salary threshold for exempt employees under the executive and administrative exemptions increased depending upon location. For New York City, Nassau, Suffolk and Westchester counties, the salary threshold increased from $1,200 per week to $1,237.50 per week (or $64,350.00 annually). For the remainder of the state, the minimum salary requirement for these exempt employees increased to $1,161.65 per week (or $60,405.80 annually) from $1,124.20 per week. Consequently, for New York employers, the DOL final rule and the Texas court decision have less impact.
New Jersey employers should continue to follow developments under the federal law since the state follows the federal thresholds.
Employer’s Next Steps
Employers should review their payroll practices to make sure that employees they consider to be exempt are being compensated at the rates required to maintain their status.
Author Contributions:
Special thanks to Afsha Malik, Law Clerk in the Tarter Krinsky & Drogin Labor & Employment Practice, for contributing to the research and writing of this alert.
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