In a significant win for the Biden administration, on September 11, 2024, the U.S. Fifth Circuit Court of Appeals affirmed the U.S. Department of Labor’s (DOL) authority to set salary levels governing exemptions from federal overtime pay requirements. The court confirmed the DOL’s position that salaried workers making less than $43,888 are eligible for time-and-a-half wages when they work more than forty hours a week. According to the Biden administration plan, the minimum salary will rise to $58,656 on January 1, 2025, and continue to increase every three years.

The rule updates the minimum salary required to fall within the “white collar exemption” under the Fair Labor Standards Act (FLSA), which excludes certain executive, administrative, and professional employees from overtime pay eligibility. In addition to considering job duties, the DOL has repeatedly prevented workers from qualifying for the exemption if their salary falls below a certain level.

Previously, the Trump-era federal overtime rule set the threshold at $35,568. The new, higher threshold would affect four million additional workers and has attracted criticism from employers who argue that this higher threshold will result in significantly costs increases, either in the form of higher salaries or increased overtime payments.

The decision, issued by a panel of three federal appellate judges, states that the authority of the DOL to set the salary thresholds is not an unconstitutional delegation of power because the DOL is guided by FLSA’s text and purpose. In its reasoning, the court highlighted that distinctions based on salary level are “consistent with the FLSA’s broader structure,” which provides protections for workers that “common sense indicates are unnecessary for highly paid employees.” The Fifth Circuit joins the D.C. Circuit, the Second Circuit, the Sixth Circuit, and the Tenth Circuit in reaffirming the DOL’s authority to establish a minimum salary for the exemption.

The Biden administration rule became effective on July 1, 2024, and is still facing at least three legal challenges from businesses across multiple federal courts. Attorneys for the DOL will likely use the new Fifth Circuit ruling to defend the Biden administration’s rule, although some courts, such as the U.S. District Court for the Western District of Texas, have already rejected unconstitutionality arguments and found that the salary level test is “well within” the DOL’s authority.

Notably, the Biden administration also raised the minimum salary for highly compensated employees. Highly compensated employees are classified as exempt under the white collar exemption if their salary exceeds a certain amount and if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee. As of July 1, 2024, the minimum salary for a highly compensated employee is $132,964 per year, and it will increase to $151,164 as of January 1, 2025.

Employers should review and assess employee duties and salaries to ensure they are complying with the latest federal overtime rule. If you have any questions about federal overtime rules or about the recent Fifth Circuit holding, please do not hesitate to contact a Kullman attorney.