2025 Salary Thresholds for FLSA Exemptions: Takeaways for Employers

Update: On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the U.S. Department of Labor's April 2024 rule in its entirety. The decision applies to all employers nationwide and is effective immediately. Read about the development in our new insight.

Before the end of the year, employers will need to review the exempt status of their employees to ensure they are compliant with upcoming changes to federal law. The U.S. Department of Labor ("DOL") sets minimum wage, overtime, and other labor standards affecting both public- and private-sector employees. For employees to qualify as exempt from overtime under one of the "white collar" exemptions (executive, administrative, and professional), their roles must meet certain criteria related to job duties and they must be compensated at or above a set salary threshold. The DOL updates this threshold periodically to maintain the standard of living for exempt employees.

As discussed in our previous post, in April 2024, the DOL released a new rule that raised the salary threshold for the "white collar" exemptions. Pursuant to this rule, the salary threshold required to qualify for one of the white collar exemptions will increase from $844 weekly ($43,888 annually) to $1,128 weekly ($58,656 annually), effective January 1, 2025. Additionally, the total annual compensation required to meet the "highly compensated employee" exemption will increase from $132,964 to $151,164.

The DOL's new rule also provides that, beginning July 1, 2027, the salary thresholds will automatically increase every three years based on up-to-date wage data.

Although some states have their own salary thresholds and job duties requirements for similar white collar exemptions, which may or may not be greater than or different from the Fair Labor Standards Act's (FLSA) threshold, all employers need to ensure they are in compliance with the federal standard.

There have been attempts to challenge the DOL's rulemaking authority in the past, and there may be more challenges in the future. A recent challenge in the 5th Circuit was unsuccessful. In Mayfield v. Department of Labor, a small-business owner challenged the DOL's latest rule, arguing that the agency exceeded its rulemaking authority by setting a salary threshold because the FLSA's language focuses only on job duties. The court disagreed, ruling that the DOL has the power to include and define salary thresholds. The court noted that salary thresholds have been a longstanding aspect of the FLSA exemptions, and the DOL's recent modifications to the thresholds fall within its delegated authority.

The 5th Circuit, however, acknowledged that there could be a circumstance in which the DOL oversteps its authority. For example, an excessively high salary threshold could effectively erode the significance of the duties test. This case therefore left open the possibility of further legal challenges to the DOL's April 2024 rule.

Additional attempts to challenge the DOL's 2024 rule are pending in the U.S. District Court for the Eastern District of Texas. These challenges have been brought by the state of Texas and a coalition of more than a dozen Texas and national trade associations, arguing that the rule is legally invalid. Oral arguments were held on November 8, 2024, addressing a consolidated motion for summary judgment seeking to invalidate the rule. The judge did not state when he would issue his ruling on the motion, but it is anticipated to issue before the January 1, 2025, increase. Should the court grant the motion, the decision may have the effect of invalidating the DOL salary increases on a nationwide basis—similar to the outcome of litigation in 2017 which blocked a salary threshold increase attempted by DOL rule under the Obama administration.

Key Takeaways for Employers

• Employers should review their exempt positions to determine which roles will be impacted by this increased salary threshold.
• After making this determination, employers should decide whether to retain exempt status for certain roles by increasing the salary to meet the minimum threshold or reclassify the role as non-exempt. These decisions should be made and implemented by January 1, 2025. We encourage employers to consult with legal counsel when making these decisions.
• Employers should also examine how these new salary thresholds will interact with state minimum wage and overtime laws, which are often more employee-friendly.
• There are additional pending legal challenges to the DOL's April 2024 rule. Employers should keep an eye out for any updates on this topic.

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As always, DWT will provide updates as needed. In the meantime, if you have any questions about your company's compliance, please contact legal counsel.