The federal minimum salary threshold for the Executive, Administrative, and Professional (EAP) exemption is once again $684 per week (annualized to $35,558) and $107,432 per year for Highly-Compensated employees after a federal court in Texas reversed the DOL’s increase announced earlier this year. While previous injunctions applied to specific plaintiffs, this ruling applies to all employers nationwide.
On November 15, 2024, the US District Court for the Eastern District of Texas issued a ruling vacating the DOL’s planned increase to the minimum salary threshold used to classify EAP and Highly-Compensated exempt employees. Not only does the court’s ruling stop the planned salary increase which was to go into effect as of January 1, 2025 and beyond but it also reversed the salary increase which has been in place since July 1, 2024.
LOOKING BACK
In April, the DOL announced its plan to enact a staged increase to the minimum salary threshold.
Since the announcement, employers have been strategizing on the best way to handle the impacts on exempt employees who fall below the new thresholds, either increasing the employee’s salary or reclassifying them as non-exempt. While increasing employees’ salaries impacts a company’s operational budget, it could also necessitate increasing others’ salaries to avoid wage compression.
Reclassifying employees to non-exempt could also result in higher operational costs due to overtime obligations as well as negatively impacting employee morale of the repercussions such as having to track their time and/or being restricted as to when they work to not go over 40 hours in a workweek.
LOOKING AHEAD
The good news is that employers no longer have to make those decisions before January 1, 2025.
The bad news is that employers will need to decide what they do about the changes they made as of July 1, 2024.
If you reclassified employees to non-exempt, the answer is easier as you can just reclassify them back to exempt.
If, however, employers increased the employees’ salaries from $684 to $844 per week, the decisions may be more difficult. Keeping the higher salary is more costly. However, reducing their salaries back to $684 per week will probably create indirect costs of disengagement from employees checking out at work or leaving the company altogether.
Practice Note
While you usually should not switch employees from exempt to non-exempt and back again so quickly, given this is due to regulatory changes and legal decisions, this may be the only time it is permissible. Do not use this as a regular employee management strategy as it could violate FLSA.
State-Specific Notice
While this ruling is nationwide, some states have minimum salary thresholds that are higher than the federal level. Those are not impacted by this ruling so employers must comply with those to classify employees as exempt.
Our HR Support Plan helps you stay up-to-date on federal and state regulatory changes as well as helps you review your options for navigating changes such as this one.
