Compliance

White Collar Exemptions

District Court Invalidates Rule Raising 'White Collar' Salary Threshold
On November 15, 2024, a district court vacated and set aside the U.S. Department of Labor's (DOL) 2024 final regulations to increase the minimum salary level for the Fair Labor Standards Act (FLSA) executive, administrative, professional, outside sales, and computer employee (EAP) or "white collar" exemptions [Texas v U.S. Department of Labor, No. 4:24-cv-499 (E.D. Texas, 11-15-24)].

Due to the court ruling, the increase in the overtime threshold scheduled for January 1, 2025, will not go into effect. The court also struck down the July 1, 2024, increase that previously went into effect, although many employers may have already increased employees' salaries to comply.

Updates on Appeals
On November 26, 2024, the DOL filed a notice of appeal in the 5th Circuit in the Texas case. The Texas district court had reached a different conclusion than the three-judge appellate panel in the same circuit did in Mayfield v. United States Department of Labor, 117 F.4th 611 (5th Cir., 9-11-24). In Mayfield, a three-judge 5th Circuit panel unanimously determined the 2019 rule increasing the minimum salary for exempt employees was valid and fell within the DOL's explicitly delegated authority to define and delimit the terms of the "white collar" exemption. Mayfield had filed a petition requesting a rehearing of the full panel of circuit judges, but the 5th Circuit denied the petition on February 14, 2025.

On February 28, 2025, the DOL filed a notice to appeal a third case that was brought in Texas on the EAP exemption – Flint Avenue v. U.S. Department of Labor, No. 5:24-cv-130 (N.D. Texas, 2-28-25). Flint Avenue, the marketing firm that brought the case against the DOL, said in its complaint that the final rule threatened small businesses. Flint Avenue had also requested a preliminary injunction to halt the final rule until a decision was reached in the case. The district court judge denied the motion in July and stated that Flint Avenue did not show it would be irreparably harmed by the final rule going into effect.

After the Texas decision was reached, the district court issued an order on December 30, 2024, granting Flint Avenue's motion for summary judgment, which dismissed the case in favor of the marketing firm. The order states that the district court found the decision in the Texas case "to be persuasive and hereby adopts said reasoning in [its] ruling." The order states that the 2024 final rule is "set aside and vacated."

Nothing has happened with the appeals.

Current Exemption Tests
Bona fide executive, administrative, professional, outside sales, and computer (collectively referred to as EAP) employees are exempt "white collar" employees under the FLSA. These employees are not covered by minimum wage, overtime, and certain recordkeeping requirements of the FLSA and are commonly referred to as being exempt.

The three tests for determining exempt status measure the actual duties and responsibilities of the employee, not the job title. To fall within the EAP exemption, employees generally must:

(1) Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed (the salary basis test);

(2) Be paid at least a specified weekly salary level (the salary level test); and

(3) Primarily perform executive, administrative, or professional duties, as provided in the DOL regulations (the duties test).

Salary Thresholds
The DOL confirmed that, for enforcement purposes, it is applying the 2019 rule's minimum salary levels. In general, employees earning less than $684 a week ($35,568 a year) are nonexempt and are entitled to overtime pay, whether they are paid on an hourly or salary basis. Employees paid a salary above that threshold level must meet a duties test (i.e., perform executive, administrative, or professional duties, as provided in the DOL regulations) to be exempt from overtime. Highly compensated employees (HCEs) paid more than $107,432 a year have to meet only one prong of one of the duties tests to qualify as exempt.

Employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the standard salary level.

U.S. Department of Labor, Wage and Hour Division