U.S. Department of Labor Releases Final EAP Overtime Rule

By John S. Gannon - Skoler Abbott P.C.

April 24, 2024

Last month, we reported that the U.S. Department of Labor (DOL) was on the brink of issuing a new rule that would increase the minimum salary level for workers classified as exempt under the Executive, Administrative, and Professional (“EAP”) exemptions.  On April 23rd, the DOL officially released the final EAP overtime rule, which takes effect on July 1, 2024, and will increase the minimum salary level in two phases from the current $35,568 per year ($684 per week) to:

- $43,888 annually ($844 per week) on July 1, 2024; and
- $58,656 annually ($1,128 per week) on January 1, 2025.

The new EAP overtime rule will also increase the annual compensation requirement for employees classified as exempt under the highly compensated employees (HCE) exemption.  On July 1, 2024, the HCE total annual compensation level will increase from the current threshold of $107,432 to $132,964 by July 1, 2024, and to $151,164 by January 1, 2025.

The new rule also adopts an automatic escalator provision that will update these salary thresholds every three years.  The first automatic update will be on July 1, 2027, assuming the rule lasts that long.  Last time the DOL included an automatic escalator provision in the EAP overtime rule was back in 2016, and readers might recall that a federal court invalidated that version of the rule, so it never took effect.  Time will tell whether the 2024 version of the EAP overtime rule will suffer a similar fate.

For now, employers need to plan as though the new rule will take effect as planned on July 1, 2024.   We suggest that businesses take the following steps to prepare for the minimum salary increases:

1.  Identify all workers currently classified as exempt who are earning less than $43,888 annually ($844 per week), and plan to either give them a raise to preserve exempt status, or reclassify them as non-exempt.  Given that this increase is effective in a little more than 60 days, it seems unlikely that this part of the rule will be invalidated before July 1, 2024.

2.  Identify all workers currently classified as exempt who are earning less than $58,656 annually ($1,128 per week), and start talking to management about what do to at the end of the year if the new EAP overtime rule is not invalidated by the courts (or rolled back by a new Presidential administration after the election later this year).   Do not wait until November or December of this year to plan for this major change, especially if you have a lot of workers classified as exempt and earning a salary less than $58,656/year.

3.  Consider using this change in the law as a launchpad for conducting a more comprehensive wage and hour audit that looks at issues such as misclassification of EAP worker under the duties tests.  Remember, just because workers meet the current and future EAP minimum salary levels does not mean they are automatically exempt from overtime.  They also have to meet the rigid duties tests set out in the DOL’s regulations.  A properly conducted wage and hour audit will also look at other common mistakes that can lead to litigation, such as failure to pay for all hours worked, recordkeeping violations, meal break issues and sick time policy and practice mistakes.

If you have questions about the new EAP overtime rule, or any other wage and hour issues, please feel free to reach out to our attorneys for advice and assistance.

www.skoler-abbott.com