The U.S. Department of Labor’s (DOL’s) final rule increasing the salary level threshold for employees to be classified as exempt took effect for the vast majority of the nation on Monday, July 1, 2024.
However, on June 28, in State of Texas v. Dept. of Labor (E.D. Texas), a federal judge issued an injunction blocking the rule from going into effect as it applies to certain workers in Texas. Importantly, because the lawsuit was brought by the state of Texas, the injunction applies to Texas government employees only and does not affect private employees in Texas or any employees, private or government, in other states. Accordingly, for most employees, the final rule has gone into effect.
The State of Texas court held that the DOL exceeded its authority in issuing the final rule, reasoning that only if an employee’s salary level served as a plausible proxy for a position otherwise exempted by a duties test would a salary level test withstand scrutiny. The State of Texas case was one of three lawsuits filed in federal courts in Texas seeking to block the DOL’s final rule, asserting that the rule exceeds the DOL’s authority and will drive up payroll costs by making fewer workers exempt from overtime. Therefore, if these other courts should follow the State of Texas court’s reasoning, it is quite possible that the final rule could be blocked in the future on a nationwide basis, completely eviscerating the rule.
As a reminder, the first phase of the new rule, which became effective July 1, 2024, increases the minimum salary level from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized). On January 1, 2025, the second phase of the new rule will go into effect, raising the minimum salary level again to $1,128 per week ($58,656 annualized). The new rule also raises the annual compensation for a highly compensated employee to $132,964 on July 1, 2024, and $151,164 on January 1, 2025. The salary basis and duties tests are not affected.
Keep in mind that many states have established salary levels that exceed federal requirements. For example, in 2024, Colorado’s minimum annual salary level for exemption is $55,000 and will be adjusted each year commencing January 1, 2025, based on the Consumer Price Index. Another example is California’s minimum salary level of $66,560. However, in states like Wyoming, where the federal salary level applies, the adjustment required could be significant.
Employers Council will keep you posted as rulings are issued in the outstanding cases as to whether enforcement of the final rule will be enjoined on a nationwide basis. In the meantime, employers, including public sector employers outside of Texas, must comply with the rule.
As always, if you are a Consulting or Enterprise member and have any questions regarding how the new DOL rule will affect your business, contact Employers Council for assistance from an attorney or HR consultant.
Barbara Bagdon is an attorney for Employers Council.