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In April 2024, the Department of Labor (DOL) implemented its final rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” raising the salary thresholds for “white-collar” and highly compensated employees under the Fair Labor Standards Act (FLSA). This rule, effective from July 1, 2024, extends overtime eligibility to millions of employees by increasing the compensation thresholds.
Overview of the Final Rule
Under the FLSA, employees working more than 40 hours per week are entitled to overtime pay at 1.5 times their regular rate, unless they meet the criteria for an exemption under the executive, administrative, or professional (EAP) categories. To qualify for the EAP exemption, three tests must be met:
- The employee must receive a fixed salary not subject to reduction (salary basis test).
- The salary must meet or exceed a minimum level (salary level test).
- The employee’s primary duties must involve executive, administrative, or professional tasks (duties test).
The DOL’s new rule increased the salary threshold in two phases:
- July 1, 2024: The annual salary threshold increased to $43,888 ($844 per week).
- January 1, 2025: The salary threshold will further rise to $58,656 ($1,128 per week).
For highly compensated employees (HCE), the threshold also increased:
- July 1, 2024: The HCE threshold rose to $132,964.
- January 1, 2025: It will increase to $151,164.
Legal Challenges in Texas
Several lawsuits have challenged the rule, including the State of Texas v. Dep’t of Labor case, where Texas sought an injunction to block the rule. The court issued a limited injunction, preventing the rule from applying to the state of Texas as an employer, but it remains effective for all other employers.
The court found that the DOL’s focus on salary rather than duties in determining exemption status exceeded its authority. While this ruling only applies to Texas, other lawsuits are expected to emerge, potentially influencing future rulings.
Read: Texas Federal Judge Blocks Biden’s Overtime Pay Rule for 4 Million Workers
Chevron Deference and Future Implications
The Supreme Court’s Loper Bright Enterprises v. Raimondo decision, issued in June 2024, rejected the longstanding “Chevron deference” principle. This ruling may bolster future challenges to the DOL’s authority in interpreting FLSA exemptions, as courts now have more authority to independently interpret statutes. This could impact the final rule’s long-term viability.
What Employers Need to Do
Despite the ongoing litigation, the July 1, 2024 salary threshold increases are in effect. Employers should review their employee classifications to ensure compliance with the new thresholds and prepare for the upcoming increases in January 2025. Adjusting work duties and reclassifying employees where necessary will be crucial to staying compliant.
We will continue to monitor legal developments surrounding the final rule and provide updates as the situation evolves.
