Author: Sommer Mason, CCP
On November 15, 2024, the US District Court for the Eastern District of Texas struck down the US Department of Labor's (DOL) new rule that aimed to raise the salary threshold for the "white collar" overtime exemption under the Fair Labor Standards Act (FLSA). This ruling carries important implications for employers that HR professionals must know, especially if their organization already made adjustments to meet the new salary requirements.
What happened?
The court ruled that the DOL regulations, which significantly would have raised the salary threshold for exempt employees, went beyond the agency's legal authority. Essentially, the court found that the rule relied too heavily on salary levels and neglected the traditional duties-based criteria used to determine whether an employee qualifies for the overtime exemption.
The court struck down the following DOL overtime provisions:
- The rule proposed two major salary hikes: one in July 2024 and another in January 2025.
- The first increase raised the threshold from $684 per week ($35,568 annually) to $844 per week ($43,888 annually).
- The second increase, scheduled for January 2025, would have further raised the threshold to $1,128 per week ($58,656 annually).
- The rule also included automatic salary increases every three years.
Why the change matters now
The planned salary increase for January 1, 2025 won't happen, and the salary threshold will remain at the 2019 level of $684 per week ($35,568 annually). If your organization already has begun adjusting salaries or reclassifying employees based on the new thresholds, now is the time to reassess your approach.
While the court's decision put many regulatory changes on hold, it's important to consider whether you need to reverse any changes you've already made. And if you've been working on reclassification or salary adjustments in anticipation of the new rule, consider seeking guidance on the implications of the ruling.
Take these next steps
As you process the court's decision, consider the following next steps:
- Review employee classifications: Even though the DOL's new salary thresholds are no longer in effect, it's a good idea to review your organization's classification of employees as exempt or non-exempt. Proper classification is vital to avoid costly mistakes down the road.
- Communicate with employees: If your organization made changes to employee compensation or exemption status based on the DOL's proposed changes, now is the time for a clear conversation with your team. Discuss the legal update. If your organization is considering salary adjustments, be mindful of local laws and how such changes might impact morale.
- Stay ahead of state laws: While the court struck down the federal salary threshold, remember that some states (Alaska, California, Colorado, Maine, New York and Washington) maintain their own minimum salary requirements that are higher than the federal threshold. It's important to stay compliant with state-specific regulations.
- Prepare for future changes: Though the DOL may choose to appeal the decision, additional regulatory shifts may emerge under a new administration. In any case, it's a good idea to keep your compensation strategy flexible. Gallagher offers ongoing guidance and support to help you navigate these complexities.
How Gallagher can help
We specialize in HR and compensation consulting, offering expertise to help you comply with evolving wage and hour laws. Whether you need help reassessing employee classifications, reviewing pay practices or preparing for potential future changes, we're here to support you every step of the way.
If you're unsure how the court's ruling impacts your organization, or if you're looking for proactive strategies to stay compliant, contact us.
