Why Does a Recent Texas Federal Court’s Ruling Affect Me?

This ruling has far-reaching implications for both employers and employees across the Nation, requiring adjustments in payroll management and employee communications.

So what happened? On November 15, 2024, a Texas federal court issued a significant ruling that invalidated the Department of Labor’s (DOL) attempt to increase the minimum salary for exempt employees under the Fair Labor Standards Act (FLSA).

In short, the whole rule was thrown out and the minimums have reverted to what they were prior to July 1, 2024. This means that most executive, administrative, and professional employees need to be paid at least $684 per week ($35,568 annually), and not the $844 required by the now-defunct 2024 rule. Employees classified under the highly compensated employee exemption need to be paid at least $107,432 per year, as opposed to $132,964.

Background of the Ruling

The 2024 DOL rule aimed to increase the minimum salary threshold for exempt employees—those not eligible for overtime pay—by implementing phased salary hikes. The first increase, effective July 1, 2024, raised the minimum weekly salary from $684 to $844, with a subsequent planned increase to $1,128 on January 1, 2025. The rule also included provisions for automatic updates every three years.

However, the court found that the DOL overstepped its authority by focusing too heavily on salary levels rather than duties, which are the core criteria for exempt status. The ruling not only halted the upcoming January 2025 increases but also nullified the July 2024 changes, reverting the salary threshold back to $684 weekly.

Implications for Employers and Employees

For employers, this ruling means revisiting payroll structures. Those who had already increased salaries in compliance with the July 2024 rule must decide whether to maintain these adjustments or revert to previous levels. It’s crucial to consider both federal and state regulations, as some states have their own, often stricter, exempt status criteria.The ruling means no salary threshold increase will take effect January 1, 2025, as was originally scheduled.

Actionable Advice for Employers

1. Reassess Salary Levels: Review and adjust employee classifications to align with the reverted federal salary threshold. Consult with legal counsel to ensure compliance with both federal and state laws.

2. Communicate Transparently: Clearly communicate any changes to employees, explaining the court ruling and its impact on their classification and salary. Provide written notifications, respecting any state or local requirements for announcing pay changes.

3. Stay Informed: Keep abreast of any legal developments, especially potential appeals by the DOL, which may influence future salary thresholds. Engage with regulatory resources to ensure ongoing compliance.

This blog does not constitute formal HR or legal advice and does not address state or local law. Our HR Resource Center by Mineral offers further advice on this and  many other topics. For a small additional fee you can also speak to a live HR Specialist. Contact your friendly APlus Payroll CSS for further information (including login details) or login here. Wanting to know how we can help your Payroll process? Please contact us here. Advice is always free!