![](\"https:\/\/s3.amazonaws.com\/snd-store\/a\/103419813\/11_26_24_2485319505_etra_560x292.jpg\")
<\/p>\n<\/p>\n
A federal district court judge has struck down the Biden administration\u2019s new rule regarding the salary threshold for determining whether certain employees are exempt from federal overtime pay requirements. The first phase of the rule took effect for most employers in July 2024 and affects executive, administrative and professional (EAP) employees.<\/p>\n
With a Republican administration poised to take control of the U.S. Department of Labor (DOL), the court\u2019s ruling may sound the death knell for the rule. Here\u2019s what the ruling means for employers.<\/p>\n
The rejected rule<\/strong><\/p>\n Under the Fair Labor Standards Act (FLSA), nonexempt workers are entitled to overtime pay at 1.5\u00a0times their regular pay rate for hours worked per week that exceed 40. EAP\u00a0employees are exempt from the overtime requirement if they satisfy three tests:<\/p>\n Salary basis test.<\/strong> An employee is paid a predetermined and fixed salary that isn\u2019t subject to reduction due to variations in the quality or quantity of his or her work.<\/p>\n Salary level test.<\/strong> The salary isn\u2019t less than a specific amount or threshold.<\/p>\n Duties test.<\/strong> An employee primarily performs executive, administrative or professional duties.<\/p>\n The new rule focused on the salary level test and increased the threshold in two steps. The first step occurred on July\u00a01, 2024, when most salaried workers earning less than $844 per week or $43,888 per year became eligible for overtime (up from $684 per week or $35,568 per year). The second step was scheduled to kick in on January\u00a01, 2025, when the salary threshold would have increased to $1,128 per week or $58,656 per year.<\/p>\n In addition, the rule raised the total compensation requirement for highly compensated employees (HCEs), who are subject to a more relaxed duties test than employees earning less. HCEs need only \u201ccustomarily and regularly\u201d perform at least one of the duties of an exempt EAP employee instead of primarily performing such duties.<\/p>\n As of July 1, 2024, this less restrictive test applied to HCEs who perform office or nonmanual work and earn total compensation (including bonuses, commissions and certain benefits) of at least $132,964 per year (up from $107,432). It would have risen to $151,164 on January\u00a01, 2025.<\/p>\n The rule also established a mechanism to update the salary thresholds every three years, based on current earnings data from the most recent available four quarters of data from the U.S. Bureau of Labor Statistics. However, the DOL could temporarily delay a scheduled update when warranted by unforeseen economic or other conditions.<\/p>\n The court\u2019s ruling<\/strong><\/p>\n In June 2024, the U.S. District Court for the Eastern District of Texas temporarily blocked the rule as far as its application to the State of Texas as an employer \u2014 so on an extremely limited basis \u2014 while it considered the state\u2019s underlying legal challenge to the rules (State of Texas v. U.S. Dep\u2019t of Labor<\/em>). Multiple business groups joined Texas and asked the court to vacate the rule entirely.<\/p>\n On November 15, 2024, the court did just that. It found that the new rule exceeded the DOL\u2019s authority to define terms because the EAP exemption requires that an employee\u2019s status turn on duties, not salary \u2014 and the new rule impermissibly made salary predominate over duties. The court also found the automatic updating mechanism exceeded the DOL\u2019s authority.<\/p>\n Notably, the court cited the U.S. Supreme Court\u2019s recent decision overturning the doctrine known as \u201cChevron<\/em> deference.\u201d Under the doctrine, which had been in effect for decades, courts deferred to \u201cpermissible\u201d agency interpretations of the laws they administer. The high court\u2019s ruling empowers courts to reject agency rules more easily.<\/p>\n Employer response<\/strong><\/p>\n As a result of the court\u2019s ruling, the salary thresholds for EAP employees and HCEs return to their earlier levels: $684 per week or $35,568 per year for the former and $107,432 for the latter. On its face, that\u2019s good news for employers. However, many businesses have started making moves in response to the new rule. For example, employers may have reclassified some employees as nonexempt, increased salaries to retain exempt status for others or reduced salaries to offset new overtime pay. Now what?<\/p>\n Of course, the DOL could appeal the ruling, which could make employers reluctant to institute any immediate changes. An appeal would be heard by the conservative Fifth Circuit Court of Appeals, which has repeatedly ruled against the Biden administration.<\/p>\n The best predictor of what\u2019s to come may be the treatment of a similar DOL rule issued by President Obama\u2019s administration. A court invalidated the rule in November\u00a02016 in a ruling that was appealed while Obama was still in office. The DOL under President Trump\u2019s first administration withdrew the appeal and issued the revised and less expansive rule that took effect in 2019.<\/p>\n Regardless, bear in mind that exempt employees also must satisfy the applicable duties test, whatever the salary threshold. An employee whose salary exceeds the threshold but doesn\u2019t primarily engage in the applicable duties isn\u2019t exempt from the overtime requirements.<\/p>\n Proceed with caution<\/strong><\/p>\n Employers that roll back changes in status or salary increases that were implemented in anticipation of the new rule may find that employees \u2014 or their attorneys \u2014 begin to question whether their duties warrant an exemption. Even if they don\u2019t pursue litigation, rollbacks must be weighed against the impact on employee morale in a competitive job market. The best course will vary by employer, and legal advice is strongly encouraged. We\u2019ll keep you updated on the latest news regarding the ruling.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> A federal district court judge has struck down the Biden administration\u2019s new rule regarding the salary threshold for determining whether certain employees are exempt from federal overtime pay requirements. The first phase of the rule took effect for most employers in July 2024 and affects executive, administrative and professional (EAP) employees. With a Republican administration […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,59,10],"tags":[8,11,12],"class_list":["post-17171","post","type-post","status-publish","format-standard","hentry","category-articles","category-etra","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17171"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17171\/revisions"}],"predecessor-version":[{"id":17172,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17171\/revisions\/17172"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"