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- Barclay Damon’s Lee Jacobs explains process for employers
- DOL salary threshold rule upheld in Mayfield case
When it comes to complying with the federal Fair Labor Standards Act, many employers are familiar with the concept of overtime exemptions for certain employees—commonly referred to as “white-collar” exemptions. These exemptions cover executive, administrative, and professional roles as well as certain computer and outside sales employees.
But qualifying for these exemptions isn’t as simple as holding a job title. Employers must ensure compliance with a two-part test: First, the employee must earn a minimum salary; and second, they must perform specific duties related to their exemption category.
If an employee doesn’t meet both of these standards—salary and duties—they must be paid overtime regardless of their title or, in most cases, their salary.
While the federal minimum salary threshold now stands at $844 per week (equivalent to $43,888 annually), states such as California and New York have stricter requirements with higher thresholds.
Mayfield Decision
Recently, in Mayfield v. US Department of Labor, the US Court of Appeals for the Fifth Circuit addressed whether the Department of Labor has the authority to set a salary floor for these exemptions. The plaintiffs challenged the DOL’s ability to use salary as a factor, arguing that exemptions should focus solely on job duties.
However, the court ruled in favor of the DOL, confirming its authority to require both salary and duties tests to determine exempt status. The decision didn’t address the amount of the salary threshold but rather upheld the DOL’s authority to set such a threshold. The specific question of the salary amount was left unresolved, leaving open the possibility for future challenges on this front.
New Salary Thresholds
Effective July 1, 2024, the minimum salary required for the EAP exemptions increased from $684 per week (equivalent to $35,568 annually) to $844 per week (equivalent to $43,888 annually). This threshold will increase again Jan. 1, 2025, to $1,128 per week (equivalent to $58,656 annually).
In California, however, the 2024 minimum exempt salary is $66,560 annually, and New York’s minimum exempt salary ranges for executive and administrative employees ranges from $58,458 to $62,400 per year, depending on the region, with additional increases every year through 2026.
These state-specific rules are stricter, and employers must ensure they comply with both federal and state laws when determining exempt status. Failure to do so can lead to liability under state laws, rules, and regulations.
Proper Classification Needed
The Mayfield decision reinforced the need for employers to properly classify employees under both the salary and duties tests. Misclassification can result in substantial penalties, including back pay for unpaid overtime. This is especially important in industries such as retail and hospitality, where low-salaried managers may fall below the new thresholds, creating compliance risks.
Compliance Checklist
To avoid misclassification and ensure compliance, employers should:
Audit employee classifications: Regularly review employee roles to ensure they meet both the salary and duties tests under federal and state laws.
Monitor state-specific rules: Stay up to date with stricter state laws such as in California and New York.
Plan for salary increases: Ensure compliance with the salary increases that came into effect on July 1, 2024, and prepare for the increases going into effect Jan. 1, 2025 and beyond.
Ensure accurate time tracking: For those employees whose salaries don’t keep pace with the threshold increases, accurate timekeeping systems will be essential to manage overtime.
The Mayfield decision confirms that employers must adhere to both the salary and duties tests when classifying employees as exempt. However, as threshold increases continue to be scheduled, compliance with both federal and state-specific rules is vital to avoid misclassification.
Employers must be proactive by regularly reviewing their employee classifications and preparing for upcoming changes.
The case is Mayfield v. DOL, 5th Cir., No. 23-50724, decided 9/11/24.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Lee Jacobs is partner at Barclay Damon with a focus on labor and employment compliance in the restaurant, hospitality, and cannabis industries.