How to Navigate Salary Threshold Revisions and Stay Compliant

On Nov. 15, 2024, U.S. District Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas vacated the Department of Labor’s (DOL) 2024 overtime regulations for executive, administrative and professional (EAP) employees. This decision halts planned increases to the minimum salary required to maintain EAP employees’ overtime-exempt status under the Fair Labor Standards Act (FLSA), reverting salary thresholds to their 2019 levels. 

This development leaves employers navigating a rapidly changing compliance landscape. Here’s what you need to know and how to proceed. 

Key Impacts of the Ruling: 

  • The Jan. 1, 2025, deadline to raise the minimum salary for exempt employees to $58,656 is no longer in effect. 
  • The prior $43,888 salary threshold, which took effect on July 1, 2024, has also been is invalidated. 
  • Employers are not required to adjust the pay of current employees who meet the EAP exemption criteria but earn below these thresholds. 
  • The previously reported automatic increases to the exempt salary threshold are null and void. 
  • The court’s order vacates the planned increase in the “highly compensated employee” salary threshold, which would have risen to $151,164. This means the salary threshold for white-collar exemptions reverts to the 2019 overtime level of $35,568 annually ($684 per week). 

Duties Test Still Applies

While the salary thresholds have reverted, properly classifying employees according to the duties test remains critical to ensure compliance and mitigate potential legal or financial risks. Here are the key criteria for each exemption: 

Executive Exemption: 

  • The employee’s primary duty must be managing the enterprise, a department or a subdivision. 
  • The employee must customarily and regularly direct the work of at least two other employees. 
  • The employee must have the authority to hire or fire, or their recommendations on such matters must carry significant weight. 

Administrative Exemption: 

  • The employee’s primary duty must involve office or non-manual work directly related to the management or general business operations of the employer or its customers. 
  • The primary duty must include exercising discretion and independent judgment on matters of significance. 

Professional Exemption: 

  • The employee’s primary duty must involve work requiring advanced knowledge in a field of science or learning, typically acquired through prolonged, specialized, intellectual instruction and study. 
  • Alternatively, they must specialize in highly advanced fields, such as teaching, computer analytics or engineering. 

Employer Actions to Consider

If you preemptively raised salaries to meet the now invalid July 1 or Jan. 1 thresholds, consider the potential impact of reducing those salaries. Abrupt cuts may harm employee morale, trust and retention. Transparent communication and exploring non-monetary benefits can mitigate dissatisfaction if changes are necessary.  

Employees reclassified as nonexempt under the 2024 rule can now revert to exempt status, provided they meet the duties test and the 2019 salary threshold of $35,568 annually. 

Ongoing Best Practices 

  • Regularly review and update employee classifications as job duties evolve, especially with the rise of automation. 
  • Maintain detailed documentation to justify exemption decisions and ensure compliance. 
  • Consult with legal or HR professionals for guidance tailored to your organization’s needs. 

Questions?
This ruling emphasizes the importance of staying informed about employment law developments. Employers must balance compliance with maintaining employee satisfaction, even in uncertain regulatory environments. 

For the latest updates and expert insights, subscribe to our blog or contact our team for personalized guidance on FLSA compliance.