Federal Court Overturns Department of Labor’s Overtime Exemption Rule

Finally, some good news from the courts! Late Friday, a federal court in Texas ruled that the Department of Labor’s (DOL) Overtime Exemption Rule must be removed.

This ruling means that clubs no longer need to ensure that their employees make at least $844 a week to be exempt from overtime. Additionally, clubs will no longer need to increase standard exempt employees’ wages to $1,128 a week on January 1 to keep those workers exempt.

In addition, the court rejected the increase to the annual salary threshold for the highly compensated employee (HCE) exemption. Neither the $132,964 a year salary threshold that began on July 1 nor the coming increase to $151,164 a year on January 1 is valid any longer.

With this decision, the old DOL OT Exemption salary thresholds of $684 a week ($35,568 a year) for standard exempt employees and $107,432 a year for HCEs have returned. While this is good news, the basic fact is most clubs that increased their employees’ salaries to meet the higher thresholds will not be able to simply reduce those employees’ salaries. However, no further increases will be required to keep them exempt from overtime pay. Also, be aware that any worker who receives a salary of at least $684 a week will once again be potentially exempt from overtime – as will those who make at least a salary of $107,432 a year.

As a reminder, a standard exempt employee is only exempt if he is paid a salary of at least $684 a week AND meets all of the duties test for the applicable white-collar exempt position (Executive, Administrative or (rarely) Professional). Additionally, an HCE is exempt only if he is paid a salary of at least $684 a week and $107,432 a yea, AND meets at least one part of the duties test for the applicable white-collar exempt position (Executive, Administrative or (rarely) Professional). All requirements must be met — not just the salary test — for either exemption.

Over the years, I have heard some confusion from club leaders when it comes to the HCE exemption. To clarify, the HCE exemption is simply another option available to classify an employee as exempt, but it is not your only option.

As an example, if a worker makes a salary of $100,000, then he could meet the requirements of a standard exempt employee. If he doesn’t meet all of the duties test but can meet one part of the duties test, then you could increase his salary and use the HCE exemption. Ultimately, it’s left to you to decide which exemption to use. So, if an employee claims he needs a raise to be exempt because he isn’t at the HCE salary level, the answer is he likely doesn’t need that raise because he’s exempt as a standard employee.

With this ruling, DOL will now have to decide whether to appeal. Since any appeal will take months and since the Trump administration won’t continue such appeal, I don’t expect DOL will waste its time trying to overturn this decision. However, I will keep you posted.

For now, just know that the rule has been rejected and no further salary changes are required to keep workers exempt from overtime compensation — and even some additional employees could now be exempt.

As always, I’m happy to help you or your team if there are questions.

This article was written by Brad Steele, J.D. ([email protected]), founder of Private Club Consultants, and shared for the benefit of HFTP club members and stakeholders. Brad is a frequent speaker at HFTP events.