FLSA UPDATE: Judge Strikes Down Increases
Have you been busy making changes to meet FLSA requirements? Not so fast! Organizations have spent months evaluating compensation and making plans to raise exempt employee salaries or reclassify positions in order to comply with changes to FLSA requirements, but the whole legal landscape just changed. (Spoiler Alert: You aren’t required to make any changes, but any changes you do make should be done very carefully!)
Where We Were:
Effective July 1, 2024, the Federal salary threshold increased from $35,568 to $43,888 per year for FLSA (Fair Labor Standards Act) exemption. Effective January 1, 2025, it was scheduled to increase to $58,656. Starting July 1, 2027, thresholds were scheduled to update every three years by applying up-to-date wage data.
Where We Are:
On November 15th, 2024, the U.S. District Court for the Eastern District of Texas vacated new FLSA salary thresholds nationwide. The judge struck down the upcoming January 1 increase, rolled back the existing increase from July, and stopped automatic three-year adjustments. It was like pressing an “undo” button or going back in time. This set the Federal salary threshold back to $35,568, with no plan for increases.
What Now?
Be aware that some level of change will happen, and likely within the next presidential term. We expect the Department of Labor to appeal, but don't expect the case to move quickly, based on a similar scenario in November 2016 where a federal judge blocked a planned December 2016 increase with an auto-increase feature, just prior to a new presidential administration beginning in 2017. The new administration then enacted a one-time salary threshold increase that
became effective in 2019.
Both the 2024 and the 2016 cases blocked large, planned increases to FLSA minimum salary, but the 2024 ruling is different because it LOWERS the existing salary threshold in place since July 2024.
What Should We Do?
We hope it goes without saying, but do not retroactively adjust pay! While you can revert changes you made to employees' salaries or classifications made to comply with the July 2024 or coming January 2025 threshold increases, we strongly recommend AGAINST reducing current pay or halting planned future pay increases that have been documented and/or communicated.
Action Steps:
Compliance
Remember FLSA classification is about both duties AND pay. Re-evaluate employees' classifications to make sure you've accurately classified their role as exempt or non-exempt (from earning overtime) based on job duties. You never want to wrongly prevent someone from being eligible to earn overtime! You can use this fact sheet to help determine if their role qualifies for an administrative, executive, or professional exemption. For determining exemption based on ministerial exception check out this article from our partners, Church Law & Tax.
Be aware of your state's salary threshold. Some states, including California, New York, and Washington, do have salary thresholds that exceed the FLSA threshold.
Culture
Consider how reactionary changes to pay or classification might seriously harm your culture and relationships with employees. We recognize that organizations need to steward finances well, but first and foremost your ministry should be a place where employees feel valued.
Consider how keeping your pay competitive helps both you and the employee in the long run. Examine the number of hours salaried staff are working and their level of responsibility in relation to their pay and ensure everyone is being compensated fairly.
Consider how the now lower salary threshold can be used wisely in situations where a role meets the “duties test” but the employee is entry-level based on experience. Keep in mind that the goal is to have a plan to increase pay with experience while staying in line with an appropriate pay band for the role!