On Friday, November 15, the U.S. District Court for the Eastern District of Texas struck down the Biden administration’s new overtime rules. The finding vacated the new minimum salary threshold that was imposed on July 1, 2024, as well as the second threshold set to take effect on January 1, 2025, and any subsequent increases tied to the rule. Effective immediately, the salary threshold for white-collar exemptions reverts to the former level of $35,568 annually ($684 per week).
It is possible the Biden administration will appeal the ruling, but the 5th U.S. Circuit Court of Appeals is unlikely to act on such an appeal prior to January 20, 2025, and it is not clear if the new administration would pursue the appeal. Schools that have been preparing for these increases and that already made changes to the wages of some school employees for the 2024-2025 school year are now left wondering what they can and should do in light of this ruling.
What's Next for Schools
The announcement of the new thresholds in spring of 2024 meant most schools built salary shifts into their budgets for the current school year, either increasing the wages of employees who suddenly fell below the threshold or accounting for overtime wages as the employees were reclassified to non-exempt positions. Some schools accounted for the January shift in employees’ fall wages while others intended to increase some salaries again after winter break. Schools that planned to make future changes can now simply keep employees where they are, but those that have already made changes must now decide if the changes are going to be made permanent.
For schools that faced pushback from employees who were reclassified to non-exempt status, reclassifying those employees to exempt may be a welcome announcement. Schools should confirm that any employee who is being classified as exempt meets the duties test for the exemption and that all employees in a similar position at the school are also classified as exempt. Decisions regarding exemption should be documented with the reasoning stated clearly. If contracts were issued to an employee whose classification is changing, they should be re-issued with a wage schedule that matches the new classification. Schools may wish to consider a small wage increase for any reclassified employees who were anticipating overtime and who may have budgeted for it, although such an increase is not legally necessary and would be driven by employee-relations concerns.
Schools that increased employee salaries to meet the new thresholds may face criticism if they now attempt to reduce those wages, even if such a reduction was to bring the employee back in line with other similarly positioned employees. Efforts to mitigate the changes through reduced annual increases to employees who are misaligned may be made, and any new hires do not need to be brought in at the disproportionate wage rate. However, schools should take care to avoid the appearance of impropriety or bias in wages as these shifts are made to bring employee salaries back in line and to restore equity among staff.
Constant Calibration
Some schools, including many small schools and boarding schools, were struggling to implement these rapidly increasing thresholds in a sustainable manner. While schools should review their employee classifications regularly and make adjustments when role changes require them, this ruling is likely to be welcomed by many who need to make changes more slowly. Whether a school makes changes now or in the future, NBOA will continue to provide our members with updates and implementation considerations when regulatory shifts occur so independent schools can make the best choices for their communities.
