Overtime pay regulations can be challenging, especially when legal changes and court rulings change the plan. Recent developments in Texas — including a federal court’s decision to block proposed changes to overtime eligibility — have called into question how overtime works in the state.
This article shares the current overtime rules, the implications of recent legal rulings, and best practices for business compliance with Mosey.
What Are the Current Overtime Rules in Texas?
The Fair Labor Standards Act (FLSA) is a federal law enacted in 1938 to establish minimum wage, overtime pay, recordkeeping, and child labor standards.
Administered by the U.S. Department of Labor (DOL), this law is one of the most important employment regulations in the United States, designed to protect workers from unfair labor practices.
Under the FLSA, non-exempt employees are entitled to overtime pay at a rate of one-and-a-half times their regular rate for all hours worked past 40 in a week. The FLSA applies to most employers, including businesses with annual gross revenues of $500,000 or more, as well as public agencies, hospitals, and schools.
Non-Exempt Employees
The FLSA categorizes employees as either exempt or non-exempt. This classification determines whether they are eligible for overtime pay.
Non-exempt employees are entitled to overtime pay. Their eligibility is determined by their job duties and how they are compensated.
Exempt Employees
Exempt employees are not entitled to overtime pay. To qualify as exempt, employees must meet specific criteria:
- Salary Basis: Employees must be paid a fixed salary that is not subject to reductions based on work quality or quantity.
- Salary Level: Employees must earn less than $684 per week to qualify for overtime pay as of Jan. 1, 2025, as a proposed threshold increase was struck down.
- Duties Test: Employees must perform executive, administrative, or professional duties as defined by DOL regulations.
Certain professions, such as doctors, lawyers, and teachers, are automatically exempt from overtime regardless of salary.
Additionally, remember that job duties and employee classifications work by Department of Labor definitions, not by your organization’s internal explanations. You’re allowed to call your employees whatever you’d like, but the DOL doesn’t recognize your definitions for the purposes of overtime.
Highly Compensated Employees (HCE)
The FLSA also includes a category for highly compensated employees who earn at least $132,964 annually and perform minimal executive, administrative, or professional duties. This threshold is higher than the standard exemption level.
The threshold for highly compensated employees was set to increase in January 2025, but this increase was blocked in court. If your current plan for 2025 includes the projected figures, it’s essential to review and revert your thresholds to their previous limits to remain compliant with the changing labor laws.
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What Was the Blocked Overtime Rule in Texas?
In September 2023, the Department of Labor proposed significant changes to the FLSA’s overtime rules. Overtime rules were set to increase their thresholds substantially.
- Increased Salary Threshold: Raise the salary level for exempt employees to $1,128 per week.
- HCE Threshold: Increase the highly compensated employee threshold to $151,164 annually.
- Automatic Updates: Adjust these thresholds every three years to reflect wage growth.
The goal was to reach new thresholds by Jan. 1, 2025, with a halfway step in July of 2024. The two-part implementation process was designed to help employers adjust, evaluate, and make important decisions before the full threshold increase.
These changes aimed to expand overtime eligibility. Supporters argued the changes would boost worker income, while opponents contended they would impose financial burdens on businesses, particularly small employers.
The Court’s Decision
On Dec. 20, 2024, U.S. District Judge Sean D. Jordan struck down the proposed rule, ruling that the DOL exceeded its authority. Judge Jordan’s decision emphasized that the rule prioritized salary thresholds over the duties test, effectively creating a salary-only standard for exemption.
The ruling invalidated the changes before the second phase of implementation, scheduled for January 2025, could take effect.
The Effect on Employers
The court’s decision means that the salary threshold for exempt employees remains $684 per week. Employers are not required to implement the proposed changes but should remain vigilant for future regulatory developments.
What Are Some Best Practices for Texas Employers?
To ensure compliance with current overtime rules and prepare for changes, Texas employers should adopt these best practices to remain in good standing:
Conduct Regular Employee Classification Audits
Misclassifying employees as exempt or non-exempt can result in costly penalties. Review job descriptions, salaries, and duties to ensure employees meet exemption criteria.
Pay particular attention to whether employees perform executive, administrative, or professional duties and whether they earn at least $684 per week on a salary basis. If your internal descriptions of duties and titles don’t align with the Department of Labor’s, consider reviewing them.
Track Hours Accurately
Implement reliable time-tracking systems to record non-exempt employees’ work hours. Ensure that overtime is calculated correctly and that employees are paid for all hours worked, including off-the-clock tasks.
Be certain that nothing an employee is asked to do off the clock could be considered a work duty. It may be helpful to implement a remote option for clocking in and out, like an app employees can access from their phones.
Develop Clear Overtime Policies
Establish written policies outlining procedures for requesting and approving overtime. You can implement penalties for unauthorized overtime as long as you still pay for hours worked.
If an employee continues to work overtime hours after you’ve stated that they should clock out and stop working, you can provide them with a warning or reduce their hours. As long as you aren’t asking them to fulfill work duties off the clock, you’re operating within the law.
Additionally, expectations for accurate time reporting should be established. You can request that employees clock in only when they are ready to begin their work (i.e., not right when they arrive) and clock out as soon as they’ve finished their duties.
Train Managers and HR Staff
Ensure your HR management team understands FLSA requirements and employee classifications. Training should cover identifying exempt and non-exempt roles, proper handling of overtime requests, and payroll adjustments.
What Are Some State-Specific Compliance Considerations in Texas?
Unlike other states, Texas does not have additional overtime laws beyond the FLSA. However, employers should be mindful of Texas labor laws by considering the following:
Texas Payday Law
Texas law requires timely payment of wages, including overtime. Employers are required to remit paychecks in full on every scheduled payday. If they underpay employees or pay their employees late, workers have the right to file a claim with the Texas Workforce Commission.
Additional Industry-Specific Rules
Certain industries, like healthcare and construction, may have unique overtime regulations or specific requirements under federal and state law. Working with a compliance expert like Mosey can help you determine which rules impact your industry.
Stay Compliant With Mosey
While recent legal rulings have maintained the status quo, it’s important to monitor overtime in Texas. By conducting regular audits, carefully considering your policies, and staying informed, you can minimize compliance risks and maintain equitable workplace practices.
Mosey’s payroll compliance solution helps you stay on top of state and local pay requirements, including opening the right set of accounts and tracking filing deadlines. Automate registration for tax accounts anywhere you have an employee — we’ll detect new locations automatically.
Let Mosey help you clarify compliant policies while your HR team works on bettering your business. Schedule a demo with Mosey today to learn how we make compliance easier.
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