Good news for employers – the Department of Labor’s (DOL) new rule, which significantly increased the minimum salary level threshold for exempt employees, was overturned by a federal court in Texas, effectively blocking the DOL rule and reverting the increased salary thresholds to the previous level. Succinctly stated: the new DOL rule is currently considered invalid.

Background

The Fair Labor Standards Act (FLSA) requires employers to pay their employees at least the federal minimum wage for all hours worked and overtime for any hours worked over 40 hours in a work week at a rate not less than one and one-half times the regular rate of pay.

However, the FLSA provides an exemption from the minimum wage and overtime pay for employees employed as bona fide executive, administrative, and professional employees. This exemption is commonly referred to as either the “EAP exemption” or the “White Collar Exemption.” To qualify for this exemption, the employees must meet certain salary and duty tests.

The employee generally can be exempt if they are paid a predetermined and fixed annual salary (salary basis test); paid on a salary basis at not less than $684 per week (equal to $35,568 annually) for a standard salary employee or $107,432 annually for a highly compensated employee (salary level test); and meet certain tests regarding their primary job duties as outlined in the DOL regulations. Keep in mind that employees that are paid a salary must receive the guaranteed weekly amount regardless of the quality or quantity of  work. 

Proposed New DOL Rule

In 2024, the DOL issued a new rule that raised the minimum standard salary level requirements for an EAP exempted employee to meet the salary level test. This rule raised the minimum standard salary level to $844 per week ($43,888 annually) effective July 1, 2024. Beginning January 1, 2025,  the new rule set to raise the minimum standard salary level again, increasing it to $1,128 per week ($58,656 annually.) The new rule also raised the minimum highly compensated salary level to $132,964 annually effective July 1, 2024, and to $151,164 annually effective January 1, 2025. The new rule also put in place a mechanism that would continue to increase the salary levels every three years beginning July 1, 2027.

Challenge to Vacate New DOL Rule Successful

On November 15, 2024, a federal district court in Texas issued an order vacating the DOL’s new rule that raised the salary threshold levels for the White Collar Exemption. Thus, the July 2024 minimum salary levels are no longer effective and the January 1, 2025, increase will not occur. This decision applies nationwide to all employers. The ruling also eliminated the automatic annual raises to the minimum salary levels.

What Should  Employers Do Now?

The DOL is likely to appeal the ruling. However, for the time being, the minimum standard salary level will revert back to $684 per week ($35,568 annually) and the minimum highly compensated salary level will revert back to $107,432 annually.

In the meantime, employers should take this opportunity to audit of their employees’ salaries and classifications  by reviewing job descriptions and primary duties to determine whether adjustments need to be taken in order to ensure compliance with the FLSA.