INCREASED PAY FOR SALARIED EXEMPT EMPLOYEES SET TO TAKE EFFECT ON JANUARY 1, 2025 IS STRUCK DOWN

Just as employers were grappling with how to implement a huge pay increase for salaried exempt employees that was set to take effect on January 1, 2025, a Texas federal court struck down the new regulations.   The Department of Labor tried to implement an increased overtime salary threshold by issuing new regulations in April 2024.  Part of the new rule went into effect on July 1, 2024, raising the salary threshold for exempt workers from $684 per week to $844 per week and employers had to comply with this new salary.   This meant that employers either had to raise the salary of workers to keep them exempt or workers became hourly if the salary was not $844 per week.

Starting in January 2025, the salary threshold was set to go up to $1,128 per week, a substantial increase from the $684 per week.  This was going to cause many workers to lose the exempt status and be eligible for overtime. 

However, on November 15, 2024, a federal court in Texas ruled that the Department of Labor exceeded its authority in passing these regulations and vacated the new rules.  Now, the salary threshold for exempt workers is back to $684 per week. 

Employers should be aware that the salary threshold is only half the test to determine if an employee is exempt from overtime.  Employees must also meet the job duties test to be exempt.  The three main white collar exemptions are administrative, executive and professional positions.  Each has its own set of criteria and job duties set forth in the federal regulations.  Those were not set to change and have been the same since 2004.  There are also overtime exemptions for computer professionals, creative professionals and highly compensated workers who make more than $135,000 per year.  

If a state law is more stringent and requires a higher salary for the employee to be exempt, this must be followed in lieu of the federal Fair Labor Standards Act.  Employers need to be in compliance with both federal and state laws on salary.  The employee must also receive a set salary that is not subject to deduction for quality or quantity of work.  There are numerous regulations regarding salaried employees that is fairly complex. 

The inquiry as to whether a worker is exempt from overtime is fact specific to each worker and employer and requires careful analysis.