Important Update on Federal Exemptions from Overtime – You Can Pay Less Now

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Previously, Becker published an article warning employers of a new U.S.

Department of Labor (“DOL”) Rule (the “Rule”) regarding increases to the salary

thresholds for federal exemptions from minimum wage and overtime under the

Fair Labor Standards Act (the “FLSA”). As predicted in the aforementioned

article, there were legal challenges to the Rule and, on November 15, 2024, a

federal court in Texas vacated the Rule. As a result of the court’s decision, the

salary requirements for the executive, administrative, and professional

exemptions (the “EAP Exemptions”) will continue to be $644/week ($35,568

annualized) nationwide. Notably, the required salary increases that went into

effect on July 1, 2024 under the Rule, which was $844/week ($43,888

annualized), are also vacated.

 

Executive, Administrative, and Professional Exemptions:

 

For the EAP Exemptions, the FLSA generally requires that employees perform

certain job duties to qualify for exemptions. The Court reasoned that the Rule

exceeded the DOL’s statutory authority because the Rule “is not based on a

permissible construction of [the FLSA] … the minimum salary imposed by the

2024 Rule ‘effectively eliminates’ consideration of whether an employee performs

‘bona fide executive, administrative, or professional capacity’ duties in favor of

what amounts to a salary only test.”

 

Highly Compensated Employee Exemptions:

 

The FLSA also includes a highly compensated employee exemption (the “HCE

Exemption”), which provides that employees who earn the requisite salary and

customarily and regularly perform at least one of the duties of an exempt

executive, administrative, or professional employee identified in the standard tests

for exemption are not covered by the minimum wage and overtime requirements.

Prior to the Rule, the salary requirement for the HCE Exemption was $684/week

and $107,432/year. Effective July 1, 2024, the salary requirement was increased

to $844/week and $132,964/year. However, as a result of the Rule being vacated,

the HCE Exemption remains $684/week and $107,432/year. The Court

specifically explained that its “analysis regarding the legality of the changes to the

standard salary level applies equally to the Department’s changes to the HCE

level.”

 

Conclusion:

 

What does this change mean for employers? Simply put, employers will not need

to make the choice between raising the salaries or paying minimum wage and

overtime. It is also exceedingly unlikely that the Court’s decision will be

overturned on appeal because (i) the decision will be appealed to the Fifth Circuit

Court of Appeals, which is likely to agree with the Court’s decision, and (ii) the

DOL will be under the authority of an entirely different presidential

administration effective January 20, 2025, which is also likely to agree with the

Court’s decision. It is important to note, that this decision does not affect state

laws requiring higher salary thresholds for employees to qualify as exempt from

minimum wage and overtime requirements. Therefore, staffing companies and

employers must still be aware of state laws.

 

 

This article was provided to TechServe by Becker. Learn more about Becker here.

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