Most Texas employers are now required to pay overtime to more salaried employees, thanks to the recent regulations update by the Department of Labor (DOL). Effective July 1, 2024, the DOL raised the minimum salary for exempting employees from overtime pay and created overtime eligibility for a much larger group of employees.
The State of Texas has a problem with the DOL’s salary increase – as it did in 2016 when a similar regulatory change was attempted. In response to a lawsuit, a federal district court has issued an injunction blocking the new overtime rule from applying to employees of the state.
For now, only government employees are unaffected by the expanded overtime pay requirements. Private employers in Texas must still adjust their pay practices in accordance with the new DOL regulations.
The Overtime Pay Exemption for Salaried Employees
The federal Fair Labor Standards Act (FLSA) requires most US employers to pay overtime to employees who work more than 40 hours a week. However, not all employees are eligible to receive overtime pay for their extra hours. Since its original enactment in 1938, the FLSA has exempted employees who are employed “in a bona fide executive, administrative, or professional capacity” from overtime pay requirements.
The overtime pay exemption for executive, administrative, or professional employees is sometimes known as the EAP or white-collar exemption. Whether an employee works in an EAP capacity is determined by the following three-part test.
- The employee must be paid a fixed salary.
- The amount of the salary must meet a specified minimum.
- The employee’s job duties must be executive, administrative, or professional.
The kinds of responsibilities characteristic of executive, administrative, and professional job duties include:
- Executive – management, supervision, authority to hire, fire, promote
- Administrative – office work related to general business operations, exercise of discretion, and independent judgment in significant matters
- Professional – use of discretion and judgment requiring advanced knowledge usually acquired by prolonged, specialized education
The last time the DOL increased the threshold salary amount was in 2019. Effective January 1, 2020, only employees with salaries over $35,308 annually would be exempted from overtime pay. Before that time, the minimum qualifying salary had been $23,660 annually – adjusted only one time since 1975.
Current Qualifying Minimum Salary Amount for Overtime Pay
The current annual salary amount (as of July 1, 2024) that meets the legal minimum for overtime pay eligibility is $43,888. On January 1, 2025, the amount will increase (again), and the minimum salary will be $58,656 annually until January 1, 2027, when it is slated for another increase. Thereafter, the minimum salary amount will be adjusted every three years.
Are the New Overtime Requirements Here to Stay?
While the recent changes may benefit employees, they may also pose drawbacks for the employers responsible for paying the additional compensation.
The DOL has estimated that compliance with the new rule will cost US employers about $1.4 billion and result in a transfer of about $1.5 billion to about 4 million employees. Although Texas may be the first (and biggest) state to challenge the DOL’s rule-making authority, other lawsuits from various jurisdictions have also been filed against the DOL looking to stop enforcement of the lofty increases to the minimum qualifying salary amount.
The Department of Labor Best Not Mess with Texas
In early June, Texas Attorney General Ken Paxton filed a lawsuit in federal district court against the DOL to stop enforcement of the new overtime rule. The state’s argument is basically the same as it was in 2016 when it prevailed to stop the minimum salary increases proposed by the Obama administration.
The suit claims that the DOL acted outside the scope of its legal authority and, therefore, the rule is not enforceable. In striking down the 2016 rule, the same court determined that the EAP exemption was primarily intended to exempt employees based on the job duties they perform and not the salary they earn. By setting a high minimum salary, otherwise exempt employees could qualify for overtime pay based on salary alone, which is not the intent of the law.
On June 28, the court granted Texas’ motion for a preliminary injunction and “restrained and enjoined” the DOL from enforcing the new rule against the state of Texas as an employer. Updates about the progress of the lawsuit and enforcement of the rule can be found on the Fiscal Management Division (FMX) website.
How Texas Employers Can Respond to the New Overtime Changes
At least in the short term, private employers will have to pay more money to employees who work more than 40 hours a week and whose salaries are below the current minimum. The DOL offers the following suggestions to enable employers to comply with the new regulations.
- Pay a qualifying employee overtime for overtime hours worked.
- Increase an employee’s salary to the current minimum to preserve exempt status.
- Don’t have non-exempt employees work overtime.
- Restructure an employee’s salary to offset overtime pay.
MehaffyWeber Is a Texas Law Firm With Answers for Texas Employers
Employment-related issues can become problematic for businesses that aren’t vigilant about changes in the laws and updating policies and procedures to incorporate new requirements. It is always more efficient to anticipate potential problems and address them proactively than to have to react after a situation becomes a problem.
The labor and employment lawyers at MehaffyWeber work with employers to help them avoid employment-related controversy and litigation by presenting training programs and assisting with the establishment of workplace policies. Practicing in Texas since 1946 and nationally recognized for their service, MehaffyWeber has the skill and experience to represent large and small employers regarding employment issues ranging from document preparation to litigation. Contact us today!