Determining whether an employee is exempt from overtime pay can be complex, and recent legal developments have added to this complexity. On November 15, 2024, U.S. District Judge Sean D. Jordan stopped the Department of Labor’s (DOL) rule that aimed to increase the salary threshold for overtime exemptions. This decision came from the cases Texas v. U.S. Department of Labor and Plano Chamber of Commerce v. U.S. Department of Labor in the Eastern District of Texas.
Under the Fair Labor Standards Act (FLSA), employees can be classified as exempt if they meet specific criteria, including earning at least $684 per week and working in roles such as administrative, executive, professional, or outside sales.
Earlier this year, on April 23, 2024, the DOL proposed raising the minimum salary threshold for exempt employees. The proposed changes would have increased the threshold from $684 per week to $844 per week starting July 1, 2024, and then to $1,128 per week on January 1, 2025. Many employers began adjusting salaries to comply with these anticipated changes.
However, the state of Texas and several business organizations challenged the rule. Judge Jordan’s decision to vacate the rule was based on several factors, including an overemphasis on salary over job duties, exceeding statutory authority, violating the Administrative Procedure Act, similarities to a previously blocked rule from 2016, and conflicts with the FLSA and longstanding DOL policies.
This ruling has significant implications for employers, especially because this ruling has taken place after the first phase of the increase on July 1st, 2024. While it might be tempting to revert salary increases made in anticipation of the new rule, doing so could lead to employee turnover and morale issues. Additionally, when hiring new employees, it’s crucial to offer compensation that aligns with what current employees in similar roles are earning to avoid claims of unequal pay or disparate treatment.
At Journey Payroll & HR, we understand the challenges these changes bring. As a reminder, all Journey Payroll & HR clients have an abundance of HR offerings available to them to help navigate your business. If you have any questions or need assistance, please don’t hesitate to reach out to us.