November 21, 2024

If you own a business or work in HR or payroll for your company, chances are you know about the ever-changing salary thresholds. This year, the minimum salary threshold was on an upward trek full of steady increases under the U.S. Department of Labor’s final rule. However, all (employer) eyes were on Texas this week as the rule was considered in federal court.

The Final Rule

Earlier this year, the U.S. Department of Labor announced a final rule which raised the executive, administrative, and professional (“EAP”) exemption’s salary threshold in two waves. Effective July 1, 2024 as part of a multi-phase increase, employers were sent scrambling to review job descriptions, job titles, and employee compensation structures to assess whether pay raises were needed to maintain their salaried employees exempt status, or if they were prepared to bear the cost of overtime wages some employees may now be entitled to.

That first phase increased the minimum annual salary threshold for EAP employees to $43,888 (or $884 per week) and up to $132,964 for highly compensated employees. This meant that all employees making below these thresholds must become hourly employees and therefore, eligible for overtime wages. The second increase, which was set to take effect January 1, 2025, would have increased the minimum salary threshold to $58,656 and $151,164 respectively.

The Decision Heard ‘Round The Country

Last week, the final rule was struck down in a Federal Court in Texas, not just as it applies within that state but as it applies to all employers in the U.S. The Court determined the rule was beyond the scope of the DOL’s statutory authority under the Fair Labor Standards Act. Further, the court entirely vacated the rule nullifying the previously implemented increase which took effect July 1, 2024. If you navigate to the Department of Labor’s website, you will see no mention of this decision and the next phase of the final rule still looks queued to take effect in the new year. However, unless the DOL appeals this decision and/or the incoming Administration stays an appeal, the change scheduled to take effect in just over a month is cancelled.

But, What Does It Mean?

              As it stands, the minimum salary threshold is set back to $684 per week ($35,568 annually) for EAP exemptions and $107,432 annually for the highly compensated employee. Be sure to check your state and local rules on overtime as the final rule decision pertains to the federal overtime rule only.

              If you were preparing to communicate compensation changes to your employees in light of the upcoming rollout of the next phase of the final rule, you can pause those plans for the time being. However, if you already communicated and/or implemented changes in preparation to comply with the January 1, 2025 planned rollout, you may want to consult with an attorney to explore your options for cancelling the planned change or otherwise reversing course.

Follow Executive Legal and stay tuned to see how the DOL responds and how the new Administration addresses the topic.