The Fair Labor Standards Act (FLSA) continues to be the cornerstone of wage and hour regulations in the United States, but the landscape has shifted dramatically in recent months. Four months after a pivotal Texas court ruling invalidated the Department of Labor's planned salary threshold increases, and with a landmark Supreme Court decision now reshaping the burden of proof in exemption disputes, businesses nationwide are still adjusting to these significant changes.
If you've ever felt frustrated trying to understand shifting labor regulations, you're not alone. At Lift HCM, we've seen firsthand how challenging it can be to navigate these complexities. In this article, we'll clarify the details of these critical rulings, outline their implications, and provide actionable steps to help your business stay compliant and ahead of the curve.
Table of Contents
- Understanding the FLSA and White-Collar Exemptions
- The Court Rulings: What's Happened in the Past 90 Days
- Key Legal and Practical Implications for Businesses
- Essential Steps to Ensure Compliance
- White-Collar Exemption Tests: A Deeper Look
- Quiz: Is Your Employee Exempt or Non-Exempt?
- Staying Compliant Amid Changing Regulations
Understanding the FLSA and White-Collar Exemptions
The Fair Labor Standards Act (FLSA) was enacted to ensure fair labor standards in the United States, establishing minimum wage, overtime pay, recordkeeping, and child labor standards. A significant part of the FLSA is the exemption criteria known as the "white-collar" exemptions. These exemptions allow employers to exclude certain executive, administrative, professional (EAP), computer, outside sales, and highly compensated employees from receiving overtime pay, provided they meet specific tests related to job duties and salary level.
These exemptions require meeting two primary tests: the salary basis test and the duties test. To qualify as exempt, an employee generally must receive a fixed, predetermined salary that is not subject to reduction based on the quality or quantity of work performed. The salary is currently set at a minimum of $684 per week, or approximately $35,568 annually.
📌 Current Status: As of the November 15, 2024 Texas court ruling, the FLSA salary threshold increases to $43,888 and $58,656 are invalid. The 2019 threshold of $684 per week ($35,568 annually) remains in effect.
The Court Rulings: What's Happened in the Past 90 Days
Texas Court Decision Continues to Shape Compliance in Q1 2025
Last spring, in April 2024, the Department of Labor (DOL) published what was then considered a landmark final rule that would have significantly increased the minimum salary threshold for white-collar exemptions in two phases:
- Phase 1: Increase to $43,888 annually ($844 per week), which went into effect on July 1, 2024
- Phase 2: Increase to $58,656 annually ($1,128 per week), which was set to take effect on January 1, 2025
The rule also increased the highly compensated employee (HCE) threshold from $107,432 to $151,164 annually.
Many businesses had already begun implementing the July 2024 increase when a federal district court in Texas dramatically altered the landscape on November 15, 2024. The court struck down the DOL's rule, finding that the department had overstepped its authority by overemphasizing salary thresholds at the expense of job duties considerations. This decision vacated both increases, effectively reinstating the 2019 level of $35,568 annually – the threshold that remains in effect today as we approach April 2025.
Supreme Court's Recent Ruling on Burden of Proof
On January 15, 2025, the Supreme Court ruled in E.M.D. Sales, Inc. v. Carrera, the "preponderance of the evidence" standard applies in FLSA exemption disputes, replacing the stricter "clear and convincing evidence" standard.
This lowers the burden for employers to prove an employee is exempt from overtime, requiring only a greater than 50% probability. This ruling has already influenced several lower court decisions favoring employers.
Key Legal and Practical Implications for Businesses
These recent rulings have significant implications for businesses:
- Salary Threshold Remains at $35,568: Businesses must comply with the $35,568 salary threshold established in 2019, ensuring that employee classifications accurately reflect current standards.
- Lower Burden of Proof in Exemption Disputes: The Supreme Court's ruling provides more favorable conditions for employers in defending their classification decisions.
- Continued Uncertainty: The DOL may develop new regulations or appeal the Texas ruling, creating ongoing uncertainty about future threshold levels.
- Risks of Employee Misclassification: Accurate classification based on the actual duties performed by employees remains essential, as misclassification could lead to costly legal penalties, back wages, and damages.
These rulings underscore the need for businesses to have a nuanced understanding of FLSA compliance. It's not just about salaries—proper classification requires evaluating employees' duties.
Essential Steps to Ensure Compliance
The recent rulings highlight the importance of staying vigilant and proactive in employment compliance. Businesses should take the following essential steps:
Visual Aid: FLSA Exemption Flowchart
Understanding whether your employees qualify as exempt under the FLSA can be tricky. To simplify this crucial decision, we've included the following easy-to-use flowchart. Use it to quickly determine exemption status and help ensure your business stays compliant.
.png)
White-Collar Exemption Tests: A Deeper Look
Executive Exemption Test
To qualify for the executive employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $684 per week ($35,568 annually).
- The employee's primary duty is to manage the enterprise or a customarily recognized department or subdivision of the enterprise.
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
- The employee must have the authority to hire or fire other employees, and the employee's suggestions and recommendations regarding the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
What Constitutes "Management"?
Management activities typically include:
- Interviewing, selecting, and training employees
- Setting and adjusting rates of pay and hours of work
- Directing employee work
- Maintaining production or sales records
- Appraising productivity and efficiency
- Handling employee complaints and grievances
- Disciplining employees
- Planning work and determining techniques
- Controlling budgets and implementing compliance measures
Administrative Exemption
The administrative exemption applies to employees whose primary duty is performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers and who exercise discretion and independent judgment regarding significant matters.
Professional Exemption
The professional exemption applies to employees whose primary duty is either:
- Work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (learned professional) or
- Work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (creative professional)
Computer Employee Exemption
For computer professionals, the exemption can be met either through the standard salary basis test ($684 per week) or an hourly rate of at least $27.63.
Highly Compensated Employee Exemption
Employees who earn at least $107,432 annually (with at least $684 per week on a salary basis) and perform at least one of the duties of an exempt executive, administrative, or professional employee are exempt from overtime requirements.
Quiz: Is Your Employee Exempt or Non-Exempt?
Test your understanding of FLSA exemptions with these questions:
The recent court rulings have caused waves in wage and hour regulations. But do you know how to determine if an employee qualifies as exempt or non-exempt under the FLSA? Take this quick quiz to see where you stand!
Staying Compliant Amid Changing Regulations
Historically, businesses have struggled with unclear rules and fluctuating salary thresholds. Although the current ruling maintains the existing threshold, it reminds us that employment regulations are ever-changing.
At Lift HCM, we are committed to supporting your business through these complexities by providing expert advice, comprehensive compliance solutions, and resources tailored specifically to your needs. By proactively managing classifications, improving recordkeeping, and prioritizing employee training, you can confidently navigate compliance challenges and position your business for sustained growth.
Looking ahead, proactive preparation remains your best defense against regulatory uncertainty. Take the next step by reviewing Lift HCM’s article on Common Payroll Mistakes to Avoid. Together, we can create a fairer, compliant, and resilient workplace environment.
Topics:
