The Department of Labor (DOL) recently announced the finalization of a rule that will increase the salary threshold which is used to determine whether or not executive, administrative, and professional (EAP) employees are considered exempt or nonexempt from overtime pay. Starting on July 1, 2024, the salary level for “exempt” and EAP employees increases from $684 to $844 per week (23.4% increase) and to be considered a highly compensated employee (HCE), the salary level increases from $107,432 to $132,964 per year (23.7% increase). As a HCE individual, one would qualify as “exempt” if they performed standard EAP duties or if they supervised two or more employees.
*Starting July 1, 2027, the standard salary level to determine whether an employee classifies as an HCE will be updated by the Department of Labor every three years.
Exempt and non-exempt employees are defined by 3 basic tests: 1) A salary basis test, 2) a salary level test, and 3) an employee’s duties test.. An employee must satisfy ALL three tests to be considered exempt. For the first category, the salary basis test, an employee must be paid a pre-determined and fixed salary that is not subject to the quality level or quantity level of work performed. For the second test, the salary level test, an employee must meet a minimum salary level ($844 per week starting July 1st). Finally, for the third test, an employee’s duties test, an employee’s duties must be associated with Executive, Administrative, Professional, Outside Sales, or Computer type roles.
As with all rules, there are specific exceptions written into the law. A list of exceptions can be found in the attached document: Determining FLSA Overtime and Minimum Wage Exemptions. Additional information can be found at the Department of Labor’s site: https://www.dol.gov/agencies/whd . The Department of Labor also has a toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243).
So why is this rule important to you? If a non-exempt employee performs a 40+ hour work week, they are entitled to increased compensation for the additional hours worked. Because this rule will increase the salary threshold for employees that are considered able to qualify for overtime pay, some employees that were an EAP employee or HCE employee are now considered non-exempt and qualify for the benefits of overtime pay. Therefore, it is important that you perform the three basic tests for everyone that falls into this salary threshold. This is the test by which the DOL will judge whether an employee is entitled to overtime pay.
If an employer were to not pay an employee for overtime work, they could be penalized by the Department of Labor. This can result in possible fines, paying back the employee’s wages and any possible legal fees incurred. Also, depending on the state your business operates in, you could be at risk for additional penalties.
In summary, the Department of Labor is adjusting the salary threshold for EAP employees and HCE’s on July 1, 2024. This adjustment will neccessitate that companies re-evaluate employees that fall into this new salary threshold range. Remember that there are 3 tests to determine “exempt” from “non-exempt” status. All three tests must be reached to qualify as “exempt”. Any exceptions to the rule should be verified against a valid list from the Department of Labor.
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About Tim Flanagan:
Tim Flanagan is a sales intern with Rue Insurance in Hamilton, New Jersey. He is a senior at Stevenson University in Owings Mills, Maryland. He is majoring in marketing with a minor in entrepreneurship and small business development.
About Melissa Cooke:
Melissa Cooke joined Rue in 2022 as the Director of Sales, bringing over 20 years of management and sales experience. As Director of Sales, Melissa is responsible for the strategic direction, vision, growth and performance of the sales team. As the leader of the sales team, Melissa helps the department define and navigate the sales cycle. Melissa is also responsible for the training and developing our sales internship program at Rue Insurance.
