The article below provides guidance on the FLSA exemption status rules but should not be taken as legal advice. FLSA audits are a legal analysis that should be conducted in conjunction with your employment counsel or General Counsel.
In August, we posted about the Department of Labor’s (DOL) decision to increase the salary thresholds at which employees can be considered exempt from overtime pay.
In case you missed it, on November 15, 2024, a Federal District Court in Texas overruled the DOL’s updated overtime rule, which aimed to raise the salary threshold for overtime eligibility.
The court ruled that the DOL exceeded its authority in prioritizing salary levels over job duties when determining exemptions under the Fair Labor Standards Act (FLSA).
TL;DR: We’re going back to the previous salary thresholds following the Texas court ruling
Some background on exemption status
Exemption status is a fact-based analysis, and part of that analysis considers a salary threshold for workers. While the fact-based analysis has not changed, the salary threshold has been adjusted several times over the past few decades.
Exempt employees are your traditional “salaried” employees, who are not entitled to overtime pay regardless of how many hours they work. However, it is becoming more difficult to qualify employees as exempt from receiving overtime. Currently, to qualify for exempt status, employees must meet specific criteria:
- Salary basis test: They must be paid on a salary basis, receiving a fixed salary regardless of how many hours a week they work.
- Salary level test: This will be discussed in more detail below.
- Duties test: This portion of the analysis should be conducted in partnership with your attorney, as it is very fact-specific. Job titles alone will not determine whether a role is exempt or non-exempt. Rather, it is the duties of the role that matter.
Employers must show that exempt employees primarily perform all duties specific to one of the exemptions below:
- Executive Exemption
- Administrative Exemption
- Professional Exemption
- Computer Employee Exemption
- Outside Sales Exemption
Employers can also classify an employee under the Highly Compensated Employee (HCE) Exemption. In this case, employers are only required to show that the HCE performs at least one duty of an exempt executive, administrative, or professional employee. This is a much more relaxed duties test. The major difference here is the salary thresholds, which we’ll outline below.
On the other hand, non-exempt employees are entitled to overtime pay at one and a half times their regular rate of pay for any time worked over 40 hours in a week.
NOTE: Some states require overtime to be paid for any time worked over eight hours in a day.
Proper classification is crucial, especially under this DOL administration, as misclassification can lead to significant legal and financial penalties for employers.
What should employers do now?
Barring any appeals, the DOL salary thresholds will go back to the pre-July 1, 2024, thresholds:
Executive, Administrative, and Professional (EAP) Exemptions: $684/week ($35,568/year)
HCE Exemption: $107.432/year
Many employers have already increased their salary thresholds to comply with the July 1, 2024, DOL mandate, and many are now preparing to increase their salary thresholds to comply with the January 1, 2025, mandate. Since the salary thresholds are returning to pre-July 1, 2024, standards, employers should consult with their legal counsel to determine what this means for their organization.
Are there state-specific considerations?
Of course, you knew the answer was YES. The recent ruling out of Texas does not affect any state-specific mandates for determining exemption status.
Some states don’t recognize the Highly Compensated Exemption as a shortcut to get to exemption status, so make sure to check with your attorneys.
Additionally, the states below have different salary minimums for the EAP exemptions only. This means that if your employees are in any of the states below, they must meet the state-specific minimum salary threshold to ensure that they are properly classified as exempt.
The chart below outlines the salary exemption thresholds as of January 1, 2025, for EAP Exemptions:
| State | Weekly rate | Yearly rate | Notes |
|---|---|---|---|
| Alaska | $1,128/week | $58,656/year | Alaska raised their minimums to exceed the DOL’s minimum salary threshold. Now that the DOL’s salary threshold is no longer applicable, it’s TBD if Alaska will lower their thresholds. |
| California | $1,430/week | $68,640/year | Twice the state’s minimum wage rate |
| Colorado | $1,057.69/week | $55,000/year | New threshold will come out January 1, 2025 |
| Maine | $841.21/week | $43,951/year | Updated annually |
| New York (New York City and Nassau, Suffolk, and Westchester counties) | $1,237.50/week | $64,350/year | January 1, 2026: $1,275/wk ($66,300/yr) |
| New York (rest of state) | $1,161.65/week | $60,405.80/year | January 1, 2026: $1,199.10/wk ($62,353.20/yr) |
| Washington state (small employers with 1–50 employees) | $1,332.80/week | $69,305.60/year | Twice the state’s minimum wage rate |
| Washington state (large employers with 51+ employees) | $1,499.40/week | $77,968.80/year | Twice the state’s minimum wage rate |
The states below have implemented salary thresholds for the Computer Exemption:
- California: $56.97/hour or $118,657.43/year
- Colorado: $31.41/hour or $65,333.00/year
- It is unclear whether this will increase in 2025
- Washington: $58.31/hour or $121,285/year
How should you prepare?
- Audit your salaries and job roles.
- Talk with your legal counsel about the recent court ruling’s implications for your organization, and whether there will be an appeal.
- Ask your organization:
- Are we going to adjust salaries in light of the recent ruling?
- Are we going to reclassify these folks as non-exempt and entitled to overtime instead of raising their salaries?
- Will there be budget implications if these folks are now entitled to overtime?
- Communicate any changes to your employees. Transparency goes a long way in maintaining trust and morale.
- Review and update your overtime policies.
