Exempt or not exempt, that is the question. It is not an easy question to answer, and it did not get any easier to answer when U.S. District Judge Sean D. Jordan vacated the Department of Labor (“DOL”) rule on overtime compensation (“Overtime Rule”) on November 15, 2024 in The cases are Texas v. U.S. Department of Labor et al., case number 4:24-cv-00499, and Plano Chamber of Commerce et al. v. U.S. Department of Labor et al., case number 4:24-cv-00468, in the U.S. District Court for the Eastern District of Texas.
An employee can be properly classified as exempt when they meet certain criteria under the Fair Labor Standards Act (“FLSA”). These include earning at least $684 per week and working in a role that falls under exemptions such as those for administrative, executive, professional, and outside sales employees.
On April 23, 2024, the DOL had proposed a significant increase in the amount of pay an employee needs to receive to be exempt from overtime pay at time and a half. Under the proposed rule, the minimum salary threshold for exempt employees would increase from $684 per week to $844 per week, effective July 1, 2024, and then to $1,128 per week on January 1, 2025. Employers who were aware of the proposed changes to the salary threshold were forced to adjust the compensation offered to some employees in order to maintain their exemption from overtime pay.
The state of Texas along with several business organizations sued to block the Overtime Rule. Judge Jordan vacated the Overtime Rule based on several factors including: (a) an overemphasis on salary level over duties, (b) exceeding statutory authority, (c) violation of the Administrative Procedure Act, (d) similarity to the 2016 blocked rule, and (e) conflict with both the text of the FLSA and the DOL’s longstanding policy.
This development impacts steps that employers should take regarding their pay practices and future hiring decisions. While it is possible to claw back salary increases made because of the DOL’s Overtime Rule, any such action could lead to unwanted turnover and significant morale issues. Employers should also be careful not to offer new hires the compensation offered to employees prior to the implementation of the Overtime Rule. For example, if employees in a particular position were being paid $700 per week and were raised to $900 per week because of the Overtime Rule, new hires would have to be paid $900 per week if the roles and experience are comparable. This would avoid the risk of a claim of unequal pay or disparate treatment.
If you have any questions about overtime exemption compliance or need assistance with employee classification and compliance issues, please contact David Gabor or Katherine Brustowicz of The Wagner Law Group’s Employment Law and Human Resources practice. For more information, please visit our website at www.wagnerlawgroup.com.
