In a significant development for businesses across the country, a recent ruling in Texas v. Department of Labor has put a hold on the Department of Labor’s (DOL) planned increase to the Fair Labor Standards Act (FLSA) salary thresholds for overtime exemptions. This decision, handed down by Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas, has left employers wondering about the future of these changes and what it means for their workforce.
The DOL’s 2024 Overtime Rule: What Was Set to Change?
Before the ruling, the DOL had proposed a major increase to the minimum salary required for employees to qualify for overtime exemptions under the executive, administrative, and professional (EAP) classifications. Starting January 1, 2025, the EAP salary threshold was set to rise to $1,128 per week, or $58,656 per year. Meanwhile, the highly compensated employee (HCE) exemption would increase to $151,164 annually.
This change was aimed at addressing wage growth and updating the standards that hadn’t been revised since 2019. The new rule also included an automatic adjustment to these thresholds every three years, ensuring that they would continue to reflect changing wage data.
The Court’s Ruling: A Setback for the DOL’s Plan
However, the court ruled that the DOL had exceeded its authority with these changes. The ruling effectively vacated the 2024 overtime rule, including the salary threshold increases and the provision to adjust these figures every few years. The result? Employers will continue to operate under the 2019 DOL rule, which set the EAP salary exemption at $684 per week ($35,568 annually) and the HCE exemption at $107,432 per year.
What’s Next? A Pending Appeal and Uncertainty Ahead
In response to the decision, the DOL filed a notice of appeal on November 26, 2024, signaling
that it may not accept this setback. However, the appeal will likely be influenced by the
incoming presidential administration. With President-elect Donald Trump’s nomination of U.S.
Representative Lori Chávez-DeRemer as the next Secretary of Labor, leadership changes at the DOL could impact how the appeal unfolds.
For now, it’s unlikely that the salary threshold increases will be implemented by January 1, 2025. Employers can breathe a sigh of relief, but this is far from the end of the story.
What Does This Mean for Employers?
While the 2019 salary thresholds remain in place for now, businesses should stay tuned for further developments. If the appeal is successful, the higher thresholds could eventually take effect. Alternatively, a change in leadership at the DOL might result in a shift in policy direction. For employers, this ruling offers some temporary certainty, but it’s a reminder to stay proactive about compliance with overtime laws. It’s also a good opportunity to review your exempt and non-exempt classifications, ensure your payroll systems are up to date, and be ready for potential changes down the line.
As always, R&R will keep monitoring the situation and provide updates as new information
emerges.
Author: Tom Alvarez C.P.A.; M.B.T.
