On November 15, 2024, a federal court in Texas invalidated the U.S. Department of Labor's (DOL) rule that had increased the minimum salary threshold for employees classified as exempt from overtime and minimum wage requirements under the Fair Labor Standards Act (FLSA). This ruling is effective immediately and applies nationwide.
Background
To qualify for exemption from the FLSA's minimum wage and overtime provisions, employees generally must meet three criteria:
Salary Basis Test: Receiving a predetermined and fixed salary not subject to reduction based on work quality or quantity.
Salary Level Test: Earning a salary that meets or exceeds a specified minimum amount.
Duties Test: Performing executive, administrative, or professional duties.
On April 23, 2024, the DOL issued a final rule that raised the minimum salary required for most employees to be classified as exempt under the executive, administrative, and professional exemptions. The rule proposed two phases of increases:
Effective July 1, 2024: Increase from $684 per week ($35,568 annually) to $844 per week ($43,888 annually).
Effective January 1, 2025: Further increase to $1,128 per week ($58,656 annually).
Additionally, the rule raised the total annual compensation threshold for highly compensated employees (HCEs) from $107,432 to $132,964 as of July 1, 2024, with a planned increase to $151,164 on January 1, 2025.
Court's Decision
The court determined that the DOL's rule improperly emphasized employees' salaries over their job duties when determining exemption status. This approach was found to be inconsistent with the FLSA's provisions, leading to the rule's invalidation.
Implications for Employers
With the court's ruling, the previous salary thresholds established in 2019 are reinstated:
Standard Salary Level: $684 per week ($35,568 annually).
Highly Compensated Employees: $107,432 annually.
Employers should review their employee classifications to ensure compliance with the reinstated thresholds. It's advisable to consult with legal counsel or HR professionals to navigate these changes effectively.
For more detailed information, refer to the original article on ADP
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