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DOL’s Final Rule on Exempt Employee Salary Threshold Cannot Take Effect

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(Last Updated On: January 15, 2025)

DOL’s Final Rule on Exempt Employee Salary Threshold Cannot Take Effect

Employers and employees in Massachusetts and throughout the country should be aware of a recent change to the US Department of Labor’s (DOL) final rule on the exempt employee salary threshold. Back in April 2024, the DOL published a final rule that was titled “Defining and delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.” The rule updated and revised regulations set forth under the Fair Labor Standards Act (FLSA) concerning a salary threshold for classifying an employee as exempt (and thus not subject to minimum wage and overtime pay requirements under the FLSA). The first stage of the final rule took effect in 2024, and the second stage was set to take effect in January 2025.

However, in late 2024, a federal court in Texas vacated the final rule. As such, the regulations that were in place prior to the publication of the final rule have once again set the salary threshold for determining whether an employee is exempt and, thus, not subject to minimum wage and overtime requirements under the FLSA. The federal court’s ruling has important implications for employers and employees in Massachusetts and across the United States. Our Boston employment law attorneys can explain in more detail.

Salary Threshold, or Salary Level Test, Before the DOL’s Final Rule

To understand the implications of the Texas federal court’s ruling, it is important to understand the salary threshold prior to the DOL’s final rule.

The FLSA requires all non-exempt employees to be paid minimum wage and overtime pay, with overtime pay required when an employee works more than 40 hours in a single workweek. Overtime pay must be paid at a rate of 1.5 times the employee’s regular rate of pay. Exempt employees, however, are not eligible for overtime pay.

In order for an employee to be considered “exempt” and thus ineligible for overtime pay, the employee must “pass” three tests. Those tests include a salary basis test, a salary level test, and a duties test. The salary basis test requires an employee to be paid on a salary basis. If the employee is salaried, then the next two tests can be considered. If the employee is not salaried, the employee is a non-exempt employee, and the FLSA’s overtime requirements apply to that employee. The second test is the salary level test, and this is what the DOL rule changed.

Prior to the DOL’s final rule, in order for an employee to “pass” the salary level test, the employee had to meet a salary threshold of $35,568 per year. Based on a 40-hour workweek for 52 weeks, there are an average of 2,080 work hours in a year. On that basis, a salary of $35,568 per year amounts to an average pay rate of only $17.10 per hour — less than $2.00 per hour more than the Massachusetts minimum wage.

How the DOL’s Final Rule in 2024 Was Supposed to Work

Recognizing that a salary of $35,568 was very low in relation to hourly pay rates for many non-exempt employees and recognizing that employers could potentially avoid having to pay overtime wages to employees simply by paying them on a salary basis at the same rate (or even a lower rate) than they would earn on an hourly wage basis, the DOL increased the salary threshold for the salary level test.

The DOL’s final rule required the salary threshold to increase to $43,888 per year on July 1, 2024, and this part of the rule was implemented in Massachusetts. Then, the DOL’s final rule required the salary threshold to increase again on January 1, 2025, to $58,656 per year. Starting on July 1, 2027, it also required another increase, with subsequent increases every three years from that point.

However, the US District Court for the Eastern District of Texas vacated the final rule nationwide in late 2024.

Implications of the DOL’s Final Rule Being Vacated

What does the Texas court decision mean for employers and employees in Massachusetts? In short, the DOL’s final rule is no longer in effect.

The first part of the rule that went into effect on July 1, 2024, is no longer valid, and the salary threshold has reverted to the salary threshold of $35,568 per year that was in effect prior to the DOL’s final rule. The Texas decision also means that the second part of the DOL’s final rule will not take effect.

Given that the Trump administration set the salary threshold of $35,568 in 2019, it is unlikely that the DOL will appeal the decision since it would be doing so under another Trump administration. Accordingly, the present salary threshold that employers and employees should use for the salary level test is $35,568, or $684 per week.

Contact a Boston Employment Law Attorney

If you have any questions about non-exempt and exempt employee classifications or about the salary level test and salary threshold, a Boston employment lawyer at our firm can help you. Contact Rodman Employment Law today for assistance.

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