Analysis by Michael Baer
On June 28, a federal judge temporarily stopped for one employer a final Labor Department rule that significantly raises the minimum salary threshold used in determining who can be exempted from overtime pay requirements. The rule took effect July 1. The employer is the State of Texas.
The court took no action to halt the rule from going forward July 1 in the rest of the United States, including other employers in Texas [State of Texas v. U.S. Department of Labor, et.al, No. 4:24-CV-499-SDJ (E.D. Tex.)]. While the legal attempts to stop the rule across the country continue, no other action has yet been taken to stop the rule from taking effect.
According to Bloomberg Law, in another court in Texas, a judge reportedly denied a request to place an injunction more broadly on the issue of whether the Labor Department overstepped its authority in setting the new salary thresholds [Flint Avenue LLC v. U.S. Department of Labor, N.D. Tex., No. 24-00130, preliminary injunction denied 7/1/24].
Therefore, as of that July 1 date, most U.S. employers will not be in compliance with the Fair Labor Standards Act (FLSA) if they do not pay their otherwise exempt employees at least $43,888 a year ($844 a week) on a salary basis, or fail to pay them overtime pay for work in excess of 40 hours in a work week. This is 23% higher than the $35,568 a year ($694 a week) threshold previously in effect since 2019.
The salary test, along with duties tests, are key factors used to determine exempt or nonexempt status under the law and regulations, which lay out criteria for those in executive, administrative, or professional positions to qualify. The duties tests were not adjusted under this latest rule.
A less rigorous test that does not consider duties as much applies to those considered highly compensated employees, and the monetary threshold for these workers to remain exempt from possible overtime pay increases to $132,964 per year, including at least $844 paid weekly on a salary or fee basis, the Labor Department said.
The July 1 increase is the first of two planned increases under the rule; on January 1, 2025, an additional increase of 33.6%, to $58,656 a year ($1,128 a week) is scheduled to occur. The highly compensated amount also is to increase to $151,164 a year on that date.
The rule calls for revisiting and resetting these amounts every three years.
Some 4 million workers could be impacted by these changes, the Labor Department said.
Courts Could Take Further Action to Stop the Rule
The June 28 injunction was the only one to be handed down prior to the effective date and did not impact the rule going into effect for most of the employers and employees covered by the FLSA.
The main legal argument? The salary amounts are being raised so high that the duties tests are effectively eliminated in considering whether an employee is performing in a bona fide executive, administrative, or professional capacity.
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.
Analysis by Michael Baer
On June 28, a federal judge temporarily stopped for one employer a final Labor Department rule that significantly raises the minimum salary threshold used in determining who can be exempted from overtime pay requirements. The rule took effect July 1. The employer is the State of Texas.
The court took no action to halt the rule from going forward July 1 in the rest of the United States, including other employers in Texas [State of Texas v. U.S. Department of Labor, et.al, No. 4:24-CV-499-SDJ (E.D. Tex.)]. While the legal attempts to stop the rule across the country continue, no other action has yet been taken to stop the rule from taking effect.
According to Bloomberg Law, in another court in Texas, a judge reportedly denied a request to place an injunction more broadly on the issue of whether the Labor Department overstepped its authority in setting the new salary thresholds [Flint Avenue LLC v. U.S. Department of Labor, N.D. Tex., No. 24-00130, preliminary injunction denied 7/1/24].
Therefore, as of that July 1 date, most U.S. employers will not be in compliance with the Fair Labor Standards Act (FLSA) if they do not pay their otherwise exempt employees at least $43,888 a year ($844 a week) on a salary basis, or fail to pay them overtime pay for work in excess of 40 hours in a work week. This is 23% higher than the $35,568 a year ($694 a week) threshold previously in effect since 2019.
The salary test, along with duties tests, are key factors used to determine exempt or nonexempt status under the law and regulations, which lay out criteria for those in executive, administrative, or professional positions to qualify. The duties tests were not adjusted under this latest rule.
A less rigorous test that does not consider duties as much applies to those considered highly compensated employees, and the monetary threshold for these workers to remain exempt from possible overtime pay increases to $132,964 per year, including at least $844 paid weekly on a salary or fee basis, the Labor Department said.
The July 1 increase is the first of two planned increases under the rule; on January 1, 2025, an additional increase of 33.6%, to $58,656 a year ($1,128 a week) is scheduled to occur. The highly compensated amount also is to increase to $151,164 a year on that date.
The rule calls for revisiting and resetting these amounts every three years.
Some 4 million workers could be impacted by these changes, the Labor Department said.
Courts Could Take Further Action to Stop the Rule
The June 28 injunction was the only one to be handed down prior to the effective date and did not impact the rule going into effect for most of the employers and employees covered by the FLSA.
The main legal argument? The salary amounts are being raised so high that the duties tests are effectively eliminated in considering whether an employee is performing in a bona fide executive, administrative, or professional capacity.
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.