Recently, you may have heard from your annual conference, the General Council on Finance and Administration (GCFA), or others that there is a new federal regulation that increases the salary threshold for overtime exemptions, possibly effecting ministry employers and employees alike. On Nov. 15, a federal court struck down that regulation. So what does that mean for your ministry and what do you now?
Background
The Fair Labor Standards Act (FLSA) generally requires an employer to pay an employee time-and-a-half (“overtime”) if the employee works more than 40 hours in a week.
The law exempts some employees from that requirement, notably, certain executive, administrative, and professional (EAP) workers under the white-collar exemption. To qualify for the white-collar exemption, an employee must generally satisfy a three-prong test: the employee must be paid on a salary basis, i.e., be paid a fixed and predetermined sum per week irrespective of the quantity or quality of the work performed (the “salary basis” test); the employee’s primary work must be the performance of exempt EAP duties (the “duties test”); and the employee must earn a minimum salary (the “salary threshold test”).
The 2024 Final Rule
In April of this year the DOL issued final regulations raising the white-collar exemption salary threshold (which, prior to the regulations, was last updated to $684 per week, or $35,558 per year, in 2019). The final rule raised the minimum salary in two steps. First, the rule raised the salary threshold to $844 per week ($43,888 annually). This increase became effective on July 1, 2024. In January 2025, the rule was scheduled to raise the salary threshold to $1,128 per week ($58,656 annually).
That increase relied on a new, dramatically higher methodology and would have marked a 64.9% increase over the 2019 threshold. Thereafter, the rule would have automatically updated the salary threshold every three years.
Ruling
On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated and set aside the U.S. Department of Labor (DOL)’s final regulation increasing the salary threshold for the “white collar” overtime exemption under the Fair Labor Standards Act (FLSA) on a nationwide basis.
Given the nationwide scope of the rule, it concluded that the rule is struck down on a nationwide basis. This decision vacates the rule for all employers nationwide.
This means, most notably, that the increase in the overtime threshold scheduled to become effective on January 1, 2025, will not go into effect. The court also struck down the July 1, 2024, increase that previously went into effect, although this may have limited practical effect for many employers that may have already adjusted their payroll to comply with that increase.
What Comes Next?
It is clear now that the January 1, 2025 increase will not go into effect as scheduled, and as a matter of law, the July 1, 2024 increase is nullified.
Employers that previously adjusted the salaries or exemption status of employees who earned less than the salary threshold set by the now-invalidated July 1 increase are advised to consult with counsel before considering whether to rescind those changes on a going-forward basis.
Employers should also remain aware that some states have salary thresholds that exceed the FLSA threshold, including Alaska, California, Colorado, Maine, New York, and Washington.
I Still Have Questions?
GCFA’s Human Resources Team is here to help you! Join us as we discuss this information regarding the court ruling on the Department of Labor ruling and answer your questions. Join us on December 3, 2024 at 1:30 p.m. CST. REGISTER TODAY. Can’t make that time? Register anyway and we will happily send you materials afterward.
*GCFA wishes to thank Littler Mendelson’s Workplace Policy Institute, and specifically Jim Paretti, Maury Baskin, Rob Pritchard, Rob Friedman, and Alex MacDonald for allowing GCFA to cite updates from their article, “Federal Court Strikes Down Rule Raising Salary Threshold for White Collar Overtime Exceptions,” published November 15, 2024.