Recent court action has introduced another shift in the complex and ever-changing rules governing overtime exemptions.
Most employers are familiar with the basic criteria for exempting salaried employees from overtime pay under federal law. The most common exemptions fall under the EAP (executive, administrative, and professional) categories, which apply to employees who perform specific types of higher-level duties. To qualify for these exemptions, employees must:
- Be paid on a salary basis,
- Earn at least $684 per week ($35,568 annually), and
- Perform certain administrative, executive, or professional duties.
Another common exemption is the highly compensated employee (HCE) rule, which applies to employees earning $107,432 or more annually, provided they meet less stringent duties requirements than those under the EAP test. These thresholds, set in 2019, remain the current standard.
The 2025 Rule and Its Court Challenge
Earlier this year, the Department of Labor issued a rule increasing the salary thresholds for overtime exemptions, set to take effect on January 1, 2025. The EAP salary threshold was slated to rise to $1,128 per week ($58,656 annually), and the HCE cutoff to $151,164 annually. Many employers began preparing by planning salary adjustments or transitioning employees to hourly pay.
However, on November 15, 2024, a federal court in Texas struck down the 2024 Department of Labor Rule. In response, the Department announced it would revert to the 2019 thresholds for the time being ($684 per week for EAP exemptions and $107,432 annually for HCEs) and will not enforce the 2024 Rule while appeals and other litigation are ongoing.
What Does This Mean for Employers?
For now, employers must continue using the 2019 thresholds to determine overtime exemptions. However, the final outcome remains uncertain as the case proceeds through the courts.
Even without these shifting thresholds, ensuring compliance with overtime rules can be challenging. Employers must navigate nuanced exceptions, unclear duties tests under the EAP rules, and complex overtime pay calculations.
Employers should work closely with trusted legal advisors to assess workforce classifications and wage practices, ensuring compliance with applicable regulations. Staying proactive can help mitigate risks and ensure adherence to current and future regulations.
