Earlier in the year, we were all abuzz about the Department of Labor’s changes to rules regarding salary requirements for classifying employees as overtime exempt. As of January 1, 2025, employees must be paid a salary of at least $58,656 to be exempt from overtime under any of the so-called white-collar exemptions (executive, administrative, or professional).  Most employees who do not qualify for this exemption are entitled to be paid 1.5 times their regular hourly rate for any hours worked beyond 40 in a workweek.  Earlier this year the State of Texas was granted a preliminary injunction, finding the DOL’s rule to be unconstitutional. However, the injunction granted in State of Texas v. United States Department of Labor, et. al. (4:24-CV-499), was very narrowly tailored to the State of Texas as an employer and offers no relief to private employers or those outside its jurisdiction.

Potentially more bad news came on September 11, 2024, where the Fifth Circuit Court of Appeals (on an appeal from the Western District of Texas), held that the DOL was within its authority to establish salary thresholds for overtime exemptions.  Although this decision pertained to previous DOL salary increases from 2019, the court in Mayfield v. United States Department of Labor (23-50724), held that the DOL was asserting “an authority that it has asserted continuously since 1938”. Perhaps this or another appellate court might rule differently on the current DOL regulation but given the decision in Mayfield employers cannot assume the new salary threshold will not take effect in just two months, as scheduled.

Other legal challenges to DOL’s authority and salary regulation are pending in other jurisdictions, so there remains some hope that the huge increase to salaries necessary to exempt status from overtime will be blocked before they take effect.  Still, unless and until that happens employers are well advised to prepare for the worst with what little time remains, if they have not done so already.  Suggested tips for an audit:

Step 1 – audit exempt employees’ current salaries that fall below $58,656 to determine which employees would be impacted by the January 1, 2025, increase.

Step 2 – once affected employees are identified, management must choose between (a) meeting the new salary threshold (which in many instances will be far too costly), or (b) “reclassifying” employees from exempt, to non-exempt and paying them overtime. 

Step 3 – for employees reclassified from exempt to non-exempt, because overtime itself carries additional labor costs that may be difficult to predict for employees with fluctuating schedules or who work substantially more than 40 hours/week, employers must plan how they will manage overtime expense while still meeting the needs of their business. This, too, may require advance planning.

Step 4 – employers should determine in advance when they intend to implement any changes in response to the new DOL regulations. In previous instances where the DOL sought to increase exempt salary thresholds, many employers implemented drastic and costly compliance measures, only to later learn that the regulation was delayed or modified. Our advice? Plan ahead, but do not implement any changes unless and until the DOL changes actually go into effect, if they ever do.  It might save your business considerable hassle and expense.

On a final note, keep in mind that for “close cases”, you are entitled to classify an employee who makes at least $52,790.40 (90% of the threshold) as exempt if before the end of 2025, the remaining 10% is made up through “nondiscretionary bonuses, incentives, and commissions”.

Questions? Contact Attorney John Simmons in our Davenport office by email or at (563) 333-9102