Big News for Small Businesses: Texas Court Blocks Federal Minimum Salary Threshold Increase

Small business owners, buckle up—there’s a big development in federal labor laws that could directly impact your payroll and compliance strategies. For the second time, the U.S. District Court in Texas has struck down a proposed increase to the minimum salary threshold for exempt employees under the Fair Labor Standards Act (FLSA).

This ruling not only halts the implementation of a new higher threshold, but it also voids the increase to $44,000 that was briefly implemented earlier this year. Let’s unpack what this means for you and your business.

A Quick History of the FLSA Minimum Salary Threshold

The FLSA’s salary threshold determines whether employees qualify as exempt from overtime pay under federal law. To qualify for exemption, employees must meet two primary criteria:

1. They must perform specific job duties that fall under one of the recognized exemptions (executive, administrative, or professional roles).
2. They must earn at least the minimum salary set by federal law.

Here’s how the threshold has evolved:

• 2004: The salary threshold was updated to $23,660 per year ($455 per week), which remained unchanged for 15 years.
• 2016: The Obama administration proposed raising the threshold to $47,476 per year. This rule was also struck down by the same Texas court, citing overreach of administrative authority.
• 2020: Under the Trump administration, the Department of Labor (DOL) set a more modest increase to $35,568 per year ($684 per week), which is the threshold currently in effect.
• 2023: Earlier this year, the Biden administration briefly raised the threshold to $44,000, effective in late spring. However, this increase was short-lived as the rule faced legal challenges.

The recent ruling not only prevents the proposed threshold increase (which would have been even higher than $44,000) but also nullifies the $44,000 threshold implemented earlier this year. This effectively reverts the federal salary threshold to $35,568 per year.

What This Means for Small Businesses

This ruling is significant, especially for small businesses balancing tight budgets and compliance demands. Here’s how it impacts you:

1. No Federal Increase: Employers do not need to adjust salaried employees’ pay to meet the planned $58,656 threshold set to take effect on January 1, 2025—or any higher amount that was on the horizon. For now, the federal threshold remains $35,568 per year.
2. State-Specific Rules Still Apply:
   • Colorado: The minimum salary threshold for exempt employees remains at $55,000 per year, as mandated by state law. Colorado employers must continue to comply with this higher state standard.
   • Other States: Some states, such as California and New York, also have higher thresholds than the federal level. Employers should verify their state’s requirements to remain compliant.
3. Short-Term Relief: This decision offers breathing room for businesses that were preparing to meet the increased federal threshold. However, it’s important to remain vigilant, as new proposals may emerge.

Why This Ruling Matters

For small businesses, compliance with wage and hour laws can be challenging. Rapid increases to the salary threshold often require significant adjustments to payroll budgets, job classifications, and internal policies.

This court decision provides temporary stability for small business owners while potentially setting the stage for future debates on how—and when—the salary threshold should be updated.

What’s Next?

While this ruling offers a reprieve, labor law compliance remains essential:

• Colorado Employers: The $55,000 threshold still applies. Make sure your policies reflect this state-specific requirement.
• Other States: Federal rules may have paused, but state-level thresholds vary. If you’re unsure of your obligations, reach out for expert advice.

Need Help? We’re Here for You

Staying compliant in a patchwork of federal and state labor laws isn’t easy, but you don’t have to go it alone. Contact us today for a personalized review of your wage and hour practices, and we’ll make sure you’re on solid ground.

For more details on the ruling, and how it impacts your business, contact us at [email protected] and we can help you out!

Let’s navigate these changes together—your business is worth it.