By MichaelSilver
Federal and state laws guarantee the right of most workers to receive overtime pay when they work more than 40 hours per week. The Fair Labor Standards Act (FLSA) sets a minimum requirement for overtime pay nationwide. It includes multiple exemptions from the overtime requirement, including one for individuals working in “a bona fide executive, administrative, or professional capacity.” Known as the “EAP exemption,” this provision excludes many salaried employees from overtime eligibility based, in part, on income above a threshold amount. In April 2024, the Wage and Hour Division created a new overtime rule that raises the EAP income threshold, expanding eligibility for overtime pay. The rule took effect on July 1, 2024.
Who Is Entitled to Overtime Pay?
Section 7 of the FLSA states rather broadly that employers must pay employees time-and-a-half for work above 40 hours per week. This applies to all employees unless they fall under an exemption identified in § 13 of the statute.
What Is the EAP Exemption?
Section 13(a)(1) of the FLSA identifies the EAP exemption. The general rule is that the EAP exemption applies under the following circumstances:
- The employee does not receive an hourly wage;
- Their pay is above a threshold set by the WHD; and
- The employee’s job meets the WHD’s definition of “executive,” “administrative,” or “professional.”
Executive employees must receive a salary to fit the EAP exemption. Administrative or professional employees may receive pay on a salary or fee basis. The term “salary” is often used to refer to any type of pay received by employees who are subject to the EAP exemption.
What Is the Threshold Salary for the EAP Exemption?
The threshold salary for all three categories was $684 per week, until July 1, 2024. The threshold is currently $844 per week, until January 1, 2025.
What Is an Executive Employee?
- WHD regulations define an “employee employed in a bona fide executive capacity” as someone who:
- Manages the organization that employs them or a subdivision of that organization;
- Oversees the work of at least two other employees; and
- Has the authority to hire or fire employees or can influence the organization’s employment decisions.
What Is an Administrative Employee?
An “employee employed in a bona fide administrative capacity,” according to the WHD, is one who:
- Primarily performs “office or non-manual work” involving their employer’s operations or management; and
- May use “discretion and independent judgment with respect to matters of significance” as a key part of their job.
What Is a Professional Employee?
To meet the WHD’s definition of an “employee employed in a bona fide professional capacity,” an individual’s job must require:
- Advanced knowledge of a field that typically requires “a prolonged course of specialized intellectual instruction”; or
- “Invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”
What Is the Highly Compensated Employee Exemption?
The highly compensated employee (HCE) exemption applies to employees who:
- Have one or more job duties described in the WHD’s definitions of executive, administrative, or professional employees;
- Receive income on a salary or fee basis in an amount equal to or greater than the EAP threshold; and
- Receive total annual compensation equal to or greater than the HCE threshold set by the WHD.
The HCE threshold was $107,432 per year until July 1, 2024. The threshold is currently $132,964 per year, until January 1, 2025.
What Is the Purpose of the New Overtime Rule?
In a blog post announcing the new overtime rule, the DOL notes that the WHD has not raised the EAP threshold in some time. Before July 1, 2024 the EAP threshold of $684 per week equaled an hourly rate of $17.10. According to MIT’s Living Wage Calculator, this is not enough for a single person with no children to live comfortably in many parts of the U.S.:
City Living Wage
Boise, Ada County, Idaho $22.72/hour
Madison, Dane County, Wisconsin $21.62/hour
Kansas City, Jackson County, Missouri $20.93/hour
Knoxville, Knox County, Tennessee $20.85/hour
Before July 1, 2024 the HCE threshold equaled $51.65 per hour. This is more than the living wage anywhere in the U.S., but living wages are catching up. The most expensive county in the U.S. is reportedly Santa Cruz County, California, where a living wage for a single, childless person is $36.64 per hour.
How Will the New Overtime Rule Change the EAP Exemption?
The new overtime rule increases the EAP and HCE thresholds by defined amounts twice. It will then require the WHD to update the thresholds based on current data every three years.
Date EAP Threshold HCE Threshold*
July 1, 2024 to December 31, 2024 $844 per week ($43,888 per year) $132,964 per year
January 1, 2025 to June 30, 2027 $1,128 per week ($58,656 per year) $151,164 per year
July 1, 2027 to June 30, 2030 and Updated based on available data Updated based on available data
again every three years and methodologies and methodologies
*including a salary or fee that meets the EAP threshold in effect at the time
The impact of the new rule is that more workers in executive, administrative, and professional roles are eligible to receive overtime pay.
If you have any questions or would like additional information, please talk with your MichaelSilver trusted advisor at 847.982.0333.