A District Court judge in Texas has overturned the Biden administration's Department of Labor (DOL) 2024 Rule to raise salary caps for non-exempt workers and reclassify them. Employee classification now reverts to the previous standard before the initial July 2024 changes. This has made things confusing for employers with so many changes and reversals to Texas overtime regulations in such a short time. Here's what you need to know.
Texas follows the federal Fair Standards Labor Act (FSLA) for overtime requirements. Employers must pay non-exempt employees 1.5 times their regular rate for overtime. Exempt full-time employees under contract who meet certain white-collar job duties do not have to be paid overtime.
The Biden administration's 2024 Final Rule raised the minimum salary threshold for exempt employees from $35,568 ($684 per week) to $43,888 ($844 per week) effective on July 1, 2024. A second threshold increase was supposed to go into effect on January 1, 2025, to $58,656 ($1,128 per week).
However, a federal judge in Texas ruled in November that the DOL had overstepped its authority. The judge determined that the DOL had imposed such drastic changes in minimum salary requirements that it had ignored the duties test when classifying employees under the FSLA. The 2024 Rule was overturned and employers are now to revert to the previous FSLA exempt standards that were in place before July 1, 2024.
Employers who had reclassified their employees or raised their salaries back on July 1, 2024, must now do all that work over again. Exempt full-time employees are once again back under the $35,568 salary threshold. Employers were forced by the 2024 Rule to either give their exempt employees a big pay raise for overtime compliance in Texas or reclassify them as non-exempt.
Texas is now back under the previous overtime exemption law under the FSLA, and employees must be reclassified back to the old standard. Employers must decide whether to leave any changes they made with the July 1, 2024, overtime increase in place or whether they want to reverse those changes.
The rapid changes in employee compensation in Texas have created a compliance headache for employers. They either had to give their exempt employees a large pay increase or reclassify them as non-exempt and start paying them overtime. Now the rule has reverted to what it was previously.
Affiliated HR & Payroll Services can help employers stay in compliance when it comes to this regulatory uncertainty. Our Certified Payroll Services can help you keep payroll and employee classification in compliance with local, state, and federal rules for hourly and salaried workers' overtime in Texas. Our procedures can keep you in compliance even when the rules are changing quickly.
Outsourcing your organization's payroll services can save time and money in a fluctuating regulatory landscape. You don't have to worry about employee classification or salary changes at the local, state, or federal level because the payroll service takes on that liability for you.
Organizations should carefully explain overtime rules for exempt and non-exempt employees and keep their employment policies up-to-date. Any employer that raised salaries for exempt employees back in July 2024 should think carefully before revoking those increases. It could lead to major employee dissatisfaction if they suddenly lost a salary increase that was only in place for a few months.
The Trump administration has not indicated whether it will challenge the District Court's decision, revise the 2024 Final Rule and try again, or leave things as-is. Employers should remain aware of Texas overtime regulations and any changes that impact regulatory compliance. Companies can avoid regulatory fines related to overtime and employee classification by turning to Affiliated HR & Payroll for help.
Ensure your payroll complies with the latest Texas overtime regulations—contact us today for a compliance review.