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Previously, WorkWise Compliance reported that a Texas District Court blocked the Department of Labor’s (DOL’s) new overtime exemption rules for Texas government employees. Specifically, on June 28th, 2024, a federal judge in Texas ruled that the DOL likely exceeded its authority in implementing its final overtime provisions rule. Additionally, the State of Texas (in State of Texas v. U.S. Dep’t of Labor) filed suit trying to stop the new overtime rule from taking place. The June decision, however, only applied to Texas government employees. This was because the “State of Texas” was the only plaintiff in that case. Explicitly, the judge declined to issue a nationwide stay on the new rule. That changed, though, when, on November 15, the U.S. District Court for the Eastern District of Texas vacated the rule. The DOL’s new rules are now set aside nationwide.
Overtime of the DOL’s Final Overtime Exemption Rules
As the nation’s primary wage law and one of the major employment laws employers must follow, the Fair Labor Standards Act (FLSA) establishes minimum wage and overtime protections for non-exempt part-time and full-time employees. However, under section 13(a)(1) of the FLSA, employees paid above the FLSA’s current salary basis are generally exempt from overtime provisions. To qualify for overtime exemption, employees must be paid on a salary basis at not less than $684 per week. These exempt employees must also perform at least one of the duties of an executive, administrative, or professional employee.
Explicitly, the DOL’s final rule would have increased the salary threshold for overtime exemption under the FLSA to $844 per week ($43,888 per year). This means that salaried employees who earn less than $43,888 would have been eligible for overtime pay. Indeed, the DOL wanted to extend overtime protections to millions of low-paid salaried employees. According to the DOL, many of these low-paid salaried employees work alongside hourly employees and do the same tasks. Like their hourly counterparts, they often work over 40 hours in a workweek. However, they are not paid an overtime rate for those hours.
Correspondingly, the rule’s effective date was July 1st, 2024. On January 1st, 2025, under another overtime exemption rule, the overtime threshold would increase to $1,128 per week ($58,656 annually).
Finally, the overtime threshold for highly compensated employees (HCEs) would have also changed. Beginning on July 1st, 2024, the annual compensation level for HCEs to be exempt from overtime pay increased from $107,432 to $132,964. On January 1st, 2025, that level would rise to $151,164.
Future salary and compensation level updates would have occurred every three years. Those updates would apply updated wage data to the regulations. The next three-year update was scheduled for July 1st, 2027.
Texas District Court Ruling
The November 15 ruling vacated the January 1st, 2025, increase mentioned earlier. It also nullified the original July 1, 2024, salary threshold increase. This nullification, however, may have little effect on employers that may have already adjusted pay scales to comply with that increase.
Overall, the Texas District Court believed that the new salary threshold was too high. Accordingly, the ruling stated that the DOL created a de facto “salary only” test for the overtime exemption rules. As Littler reported, the new rules were “in excess of the DOL’s authority” as allowed under the FLSA. Finally, the Texas District Court found that since the rule covered hundreds of thousands of employers and millions of employees, both the July 1 and January 1 provisions needed to be struck down nationwide.
Employer Takeaways
In conclusion, based on the Texas District Court’s decision, employers no longer need to follow the July 1 and January 1 DOL overtime exemption rules. However, employers will still need to follow the previous 2020 rule. If you are an employer who adjusted employee salaries to comply with the earlier final overtime exemption rules, you should consult your legal counsel to determine what, if anything, can be done considering the latest ruling.
o help business owners and their managers comply with overtime exemption laws, WorkWise Compliance created the Overtime Exemptions Compliance Program eLearning Module. This digital solution helps employers, managers, and human resources representatives understand the DOL’s overtime rule requirements and determine if employees need to be re-classified. Updates to this program regarding the latest district court ruling will be added automatically to the program within the coming weeks.
