White Collar Exemptions

District Court Invalidates Rule Raising 'White Collar' Salary Threshold
On November 15, 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.

The DOL May Appeal
The DOL may or may not appeal the ruling. The district court reached a different conclusion than the three-judge appellate panel in the same circuit that 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 v. United States Department of Labor, 117 F.4th 611 (5th Cir., 9-11-24).

If an appeal is made and granted, it is possible the higher court could distinguish the cases and uphold the lower court.

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
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.